External variables of the economy are between lights and shadows

The external component of the Dominican economy is showing positive signs, with surprising performances in the components that were thought to be the slowest to recover from the effects of the pandemic.

Remittances, exports and tourism have been showing statistics that indicate that these sectors are on the road to recovery. In the case of remittances, their performance for the first three months of 2021 surpasses all previous similar ones.

The price of oil, with its inconsistent upward and downward trend, seems to be the most difficult variable to project. For the time being, it is the most difficult unknown to clear. It has been the most important negative surprise, because to date it is almost US$ 20 above the average that the Government foresaw when it designed the general State budget for 2021. The average rate proposed is US$46.00.

Apart from the rise and fall of crude oil, the other external components show favorable performances, such as the flow of tourists with growing evidence, remittances beating their own positive monthly figures and improvement in the income generated by total exports, with gold exports leading the way, due to the price levels reached by the metal in international markets. This overall performance presents a positive outlook for the external accounts of the national economy.

So far, the brightest point is the extraordinary growth of the flow of family remittances to the country, which for the first quarter of the year accumulated a balance of US$2,548.7, an amount 49.6% higher than the similar period of the previous year. And the most dubious factor is represented by the price of oil, which began the year on the rise. The West Texas Intermediate (WTI), which is the reference for setting local fuel prices, showed increases in international markets of 5.03% in January, 17.23% in February and a decrease of 5.29% in March. In the first week of April, it closed with an additional drop of 3.10%. Subsequently, crude oil has been rising. Last Friday it closed down 0.52% to $63.13, a slight drop in price after a week of gains driven by forecasts of higher demand for crude and signs of recovery in the Chinese and US economies.

Because of its impact on both the fiscal and exchange rate sides, oil is the greatest threat to macroeconomic stability, and its upward trend at the beginning of the year has been a cause for concern. When crude oil rises, it pushes up domestic prices in sensitive areas such as fuel, transportation, electricity and freight. It puts pressure on the exchange rate because it makes the oil bill, which is the largest import component, more expensive. It also impacts the General Price Index, due to its incidence on the Transportation Group, the second largest inflation generator. For the first three months of the year, accumulated inflation stood at 2.27%.

The rise in crude oil prices, on the other hand, benefits fiscal revenues because the ad valorem tax on fuels is one of the main sources of government revenue, with a weight of around 10% of tax revenues.
But at the same time it puts pressure on the expenditure linked to the subsidy of the electricity tariff, frozen since 2009, but referred in a significant proportion to fuel oil prices. The Government assumes the proportion of the increase that is not passed on to users.

While crude oil tightens and loosens, remittances are already consolidated as the main source of foreign exchange income to the Dominican economy, reporting for the first quarter of the year a consolidated amount of US$2,548.7 million, which represented an absolute increase of US$845.5 million, equal to 49.6% in relation to the same period of 2020.

Remittances have been the external component of the economy with the best performance during the first three months of 2021, with growth in each of those months in relation to their similar in 2020.

The increase in remittances from the Dominican diaspora abroad is closely linked to the performance of the United States economy, the country from which 87% of the flows came during the month of March, when US$994.9 million entered the country, a historic figure. The other major foreign exchange generating sector, tourism, which until 2019 was the absolute leader in foreign currency inflows, has also begun to show signs of recovery.

Official statistics reflect that during the first three months of the year the arrival of foreign visitors has been increasing.

Visitor arrivals and their behavior in April

In January, 179,088 travelers arrived. In February 168,736 travelers arrived in the country and in March 263,857, with a projection for April of 292,000 visitors. Exports in general have been rebounding, boosted by the particular case of high gold prices, which are well over US$1,700 per troy ounce. The Directorate General of Customs (DGA) reported that during the month of March the value of exports was US$1,116.36 million, an amount US$299.66 million and 36.69 % higher than in the same period of 2020. Another important component, foreign investment, according to information regarding free zone companies approved by the Free Zone Council (CNZFE), is also projected to be expanding.

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