Dominican Republic advances in 2023 in risk rating

But there is still some way to reach investment grade, especially a responsible fiscal reform that leaves no room for precariousness or wastefulness.

The Dominican Republic made significant progress in 2023, improving its credit rating, but there is still some way to go to reach investment grade.

After Standard and Poor’s upgraded the Dominican Republic’s outlook from Ba3 stable to Ba3 positive in December 2022, the country achieved two more upgrades in 2023: in August of this year, Moody’s raised the Dominican Republic’s outlook from Ba3 stable to Ba3 positive, and in late November, Fitch Ratings raised the country’s outlook from BB- stable to BB- positive.

But to achieve investment grade, which is the goal announced by the Minister of Finance, Jochi Vicente, essential reforms are required because although the economy has made progress in terms of diversification, resilience, and institutionality, there is a big task in one of the critical aspects that rating agencies take into account to grant investment grade to a country: fiscal strength.

Much needs to be done, starting with the fact that the country has, according to a recent World Bank report, an “overly complicated” tax system, with an “extremely narrow” tax base due to a large number of exemptions, so that long-term sustainability risks are present if revenues and public spending are not improved.

The World Bank warns that the country’s limited tax revenue growth, combined with the fact that approximately one-fifth of tax revenues go to pay down debt, resulted in a decline in public investment from 3.2 % in 2000 to 2.6 % of GDP in 2022.

Faced with this reality, a responsible fiscal reform is needed, one that leaves no room for either precariousness or waste and makes fiscal surpluses the norm, going deficits only for history.

Do the benefits of investment grade compensate for the effort required to achieve it?

Of course, they do. With investment grade, the country’s financial costs in the international capital markets are lowered, the cost of private financing is improved through bank ratings, and the universe of investors is broadened since some institutional investors have lower limits for the risk they can assume in their investments and will choose a portfolio composition, taking into account the credit risk indicated by the rating.

In other words, the effort to reach investment grade will generate good dividends for the country.