Fuels and inflation, two thorny issues at the time of accountability

Santo Domingo, DR
The President of the Republic, Luis Abinader, gives an account to the country on the performance of his government for the second time since he became President, facing a not very encouraging economic outlook, further complicated by the war crisis in Europe, with the Russian military intervention in Ukraine, which will have severe repercussions on the world economy.

Before the beginning of 2022, the country had already felt the wave of an inflationary process with a significant impact on essential food basket products. Economists from the Central Bank and international organizations estimated inflation would slow down by mid-2021, but that was not the case. In the months before the close of last year, the authorities indicated that inflation would take longer than expected to return to its target range, which the country of 4 +/-1.

So far, the total recovery of economic dynamism and the savings achieved in public finances have allowed the government to manage the economy without significant shocks. Still, things are starting to get a little more complicated.

In 2022, the hostilities between Russia and Ukraine have put a little more tone to the fluctuations in the prices of a barrel of oil, adding considerable pressures to the execution of the General State Budget. Although in October 2021, according to Bloomberg data, the oil barrel reached US$84, already in January, it was close to US$75. With the uncertainty created by the conflict between Ukraine and Russia, the price of the barrel threatens to reach or pass the US$100 limit, and what does this imply?

It implies that, in addition to continuing to increase inflationary pressures on the domestic economy, which creates discontent in the population and gives “arguments” to the political opposition, it puts a burden on the government regarding the management of public finances, since it is estimated that with a barrel of oil at that price, the country’s oil bill would increase by 40% and Abinader would be forced to pass on at some level the increases in the international prices of hydrocarbons and to request from the National Congress a more significant approval of resources in the Budget, which would result in a higher deficit level.

Expectations
All eyes and ears of the different sectors of the population will be on President Luis Abinader’s speech today, not only in attention to what he will say about the execution of promised and announced works but also in expectation of the actions he will have to announce to face the strong wave of the economic crisis that is coming and how the most vulnerable sectors will be protected. What a challenge President Luis Abinader’s administration faces! Let us hope that he knows how to take the bull by the horns for the country’s good.