The Surplus and the Interest Bill

The Banco Central de la República Dominicana raised its policy rate by 25 basis points to 5.50 per cent on 30 September. Its own list of monetary policy statements shows the last increase came in October 2022, followed by a run of cuts and then ten consecutive holds at 5.25 per cent. The Bank calls the move preventive. Inflation has been falling, from 5.67 per cent in June to 5.13 per cent in August, and core inflation at 4.76 per cent sits inside the target of 4 per cent plus or minus 1. The worry is oil. The release says WTI passed US$100 a barrel in mid-September, and it notes that the Federal Reserve and the European Central Bank both raised rates that month. It also explains why measured inflation has stayed lower than the oil price would suggest. Government subsidies have passed only part of the rise in refined product prices through to the pump. The budget that carries that restraint into next year was already in Congress. The Dirección General de Presupuesto lists softening the local impact of higher international prices as one of its three aims. On 6 October the World Bank's regional economic update put the Dominican Republic beside Panama as an economy that has sustained strong growth on "similarly durable policy foundations".

Articles 13 to 15 of the bill set central government revenue at RD$1,510,574,484,171 and spending at RD$1,837,856,001,419, a deficit of RD$327,281,517,248. Cuadro 7 of the medium-term fiscal framework bound into the bill puts that at 3.4 per cent of GDP. Take interest out and the deficit disappears. Cuadro 6 records a primary surplus of RD$24,045.6 million, 0.3 per cent of GDP, against interest of RD$351,327.1 million, 3.7 per cent. On the bill's own figures, revenue covers every peso of spending except the cost of past borrowing, and new borrowing covers that. The burden has climbed for years. Cuadro 3 of the same framework puts central government interest at 2.8 per cent of GDP in 2022, 3.1 per cent in 2023 and 3.4 per cent in both 2024 and 2025. The reformulated 2026 budget carries 3.6 per cent. The framework then takes interest to 3.9 per cent of GDP by 2030 while the primary surplus widens to 1.2 per cent. Over those years the overall deficit narrows only from 3.4 to 2.7 per cent.

The comparison with neighbours is in the bill too. Gráfico 14, which the Vice-Ministry of Fiscal Policy built from IMF data, sets Dominican interest at 23.0 per cent of revenue in 2026 against a Latin American average of 13.2 per cent. Of the fifteen countries on the chart, only Mexico is higher, at 23.7. Most of the bill is owed abroad. The framework records that of the interest paid between January and July 2026, RD$119,194.9 million went to non-residents and RD$61,046.6 million to residents. On its figures the non-financial public sector owed US$67,370.7 million at the end of the first half, 47.9 per cent of GDP, and 78.9 per cent of the external part sits in international bonds held by private creditors. Their coupons are priced in international markets, so the central bank's move reaches the budget by another route. Tabla 7 of the fiscal risk report finds that a one percentage point rise in the policy rate lowers real tax revenue by 0.39 per cent in the year of impact, as tighter money slows demand and the tax base with it.

The margin is the weak point. The same report finds an average primary balance error of minus 0.62 per cent of GDP between 2009 and 2019, meaning budgets promised more than they delivered, and minus 0.48 per cent between 2021 and 2025. Either miss is larger than the 0.3 per cent surplus planned for 2027. This year shows how a miss happens. The framework's review of 2026 reports that by July primary spending was up 9.9 per cent on a year earlier, driven by transfers and subsidies that rose about 44.9 per cent after the oil shock and the rise in fertiliser prices. Law 43-26 of 27 July rewrote the 2026 budget. The primary surplus to July was RD$69,628.8 million, 0.8 per cent of projected GDP. Interest over the same seven months was RD$180,241.5 million.