Tourism slump punches hole in Dominican finances
The Dominican Republic’s banks, which were supported by a swift series of measures when Covid-19 struck, are now being asked to fund the government until fiscal reform can be enacted.
The Dominican Republic has arguably been Latin America’s most-strongly growing economy for more than a decade.
However, the country’s reliance on tourism has placed it in the eye of the coronavirus pandemic’s storm, while trouble has been brewing at home as well.
This year’s election, which saw the transfer of power for the first time in 16 years, was preceded by a rapid 10% devaluation of the peso. Fitch now forecasts the economy will shrink by -6.5% this year, before rebounding to 3%.
Economists ask if longer-term trend GDP will ever recover to the 5% to 6% seen in previous years as the fiscal expenditures of 2020 exaggerate outstanding fiscal weaknesses.
The new government of Luis Abinader appears aware of this and is building a raft of reforms to improve the financial stability of the economy for the coming decade.
First, however, came the firefighting required to build a stable bridge to these long-term reforms.
The country’s banking system has long been consolidated and strong.
Its leading private banks and the large state-owned bank Banreservas (now under the leadership of new chief executive Samuel Pereyra Rojas) came into the crisis in good shape.
Fitch says system capitalization was 11.9% equity to assets; return on equity was an average of 15.9%;