World Bank says efficient spending will be key to inclusive growth in Dominican Republic

Restoring debt sustainability, simplifying the tax system, strengthening and unifying social protection systems, and improving efficiency in water and sanitation delivery are among the key post-pandemic priorities for a sustained recovery of growth in the Dominican Republic, according to a new World Bank report.

The report released today focuses on how to improve the quality of spending allocation, an essential issue given the current limited fiscal space following the fiscal efforts required to address the pandemic in 2020, according to a World Bank release.

The study highlights the following key areas for advancing sector reforms:

Public debt sustainability. It notes that a strategy to stabilize the debt to gross domestic product ratio could include the following elements:

1) the adoption of a fiscal responsibility law that allows for counter-cyclical investments, based on achieving greater fiscal space resulting from spending reductions or increases in tax collection;
2) the reconstruction of fiscal “cushions” or increase of reserves, appropriate to face macroeconomic shocks, to mitigate the impact that natural disasters have on the population;
3) increasing the participation of the private sector in disaster risk management, including the insurance of public assets (schools, hospitals, roads, water treatment plants, etc.) and insurance against significant catastrophes through the issuance of catastrophe bonds.
These actions would initiate a virtuous circle of lower financing costs as market confidence in government securities improves.

The report cites improving the targeting and efficiency of the social protection system and key public services such as water and sanitation as another key aspect.

In this sense, it indicates that consolidating social protection programs will generate fiscal savings that will allow expanding the coverage of conditional transfers. In turn, it recommends strengthening sector leadership, regulation and accountability of state-owned water and sanitation companies, which could improve the efficiency and quality of these services. It also proposes efficiency improvements and adequate tariffs (including mechanisms to protect the most vulnerable) would allow fiscal transfers to support the expansion of systems (coverage, continuity and consumption) to the poorest households.

Another key area is to increase public investment. In this area, the implementation of the reforms proposed in the report could encourage greater private sector participation in infrastructure through public-private partnerships (PPPs) to help finance investment needs, while guaranteeing financing for the consumption of the poorest households.

In this regard, the report notes that while PPPs can improve service delivery, they should be structured based on optimal risk sharing between the public and private sectors to avoid incurring excessive contingent liabilities.

Objective
The communiqué explains that the central objective of the government’s public policy is to improve people’s quality of life. In that sense, the report reinforces and contributes to refine that objective with specific policy recommendations for public debt sustainability and public finance resilience that will allow greater capacity to face adverse shocks such as COVID-19, the strengthening and sustainability of the social protection system and key public services, such as drinking water and sanitation, especially for the benefit of the poorest population, and the increase and improvement of public investment, including joint projects with the private sector, explains the press release.

It adds that the study suggests that improvements in the quality of public expenditure allocation and fiscal policy indirectly support job creation in the private sector.

It specifies that, first, improvements in the efficiency of tax collection directly reduce compliance costs and therefore improve the profitability of companies. And, second, a simplification of the tax system (focusing on base broadening and rate harmonization) would level the playing field for all businesses, which would foster competition and, thus, the country’s productivity.

The report also suggests that the complexity of the Dominican Republic’s tax system could affect companies’ investment and labor hiring decisions.

It concludes by stating that “Public Expenditure Review of the Dominican Republic 2021” supports the Government’s efforts to mitigate the effect of the Covid 19 crisis on employment and poverty, allows positioning the private sector for a solid recovery and maintaining a sustainable debt dynamic.

The report was prepared at the request of the Government and with financial support from the French Development Agency (AFD) and the Global Water and Sanitation Security Partnership (GWSP). The document can be downloaded on the web through this link http://wrld.bg/kMm450G0Nwp.

Valuations
The statement highlights that the Ministry of Economy, Planning and Development (@MinEconomiaRD) positively valued the contributions made by the World Bank to the country with the publication of the report.

“Its results support the government’s efforts to improve the quality of public spending and lead public finances along a path of greater sustainability in the context of the process of recovery of economic activity and employment,” said Miguel Ceara Hatton, Minister of Economy, Planning and Development.

“The MEPyD is grateful for this new contribution from the World Bank and reiterates its commitment to contribute to give more quality to policy and public spending to boost economic growth, the welfare of people and the exercise of fundamental rights,” he added.

The World Bank representative in the Dominican Republic, Alexandria Valerio, said the country is well positioned to return to growth and advance an inclusive growth agenda, which brings greater prosperity for all citizens.

“As in most countries, the post-pandemic in the Dominican Republic calls for action and decisions so that all Dominicans can achieve a more prosperous future and a higher quality of life post-pandemic,” she added.

 

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