Fitch Ratings Revise Outlook Of This Caribbean Nation

News Americas, NEW YORK, NY, Tues. Dec. 19, 2023: Fitch Ratings has affirmed the Dominican Republic’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘BB-‘ and revised the Outlook to Positive from Stable. The Positive Outlook reflects improved governance, robust growth prospects, and a trend towards higher per capita income. Dominican Republic’s governance indicators have shown improvement, and there are expectations of legislative changes to enhance the macro institutional framework. Growth, while decelerating in 2023, is expected to recover in 2024-2025. External liquidity metrics have improved, and foreign currency debt is decreasing.

The ratings are supported by strong economic growth, diversified exports, high per-capita GDP, and favorable governance scores. However, fiscal challenges, external liquidity buffers, and reliance on external bond market financing are constraints. The upcoming presidential and legislative elections in May 2024 are expected to maintain political stability. Stimulus measures have been enacted in response to slowing growth in 2023.

Inflation has fallen, enabling the central bank to cut the policy rate. The current account deficit is forecasted to decline, largely funded by robust FDI inflows. Tax advances have been used to fund higher capex. The government has increased local market borrowing. Fiscal reforms are under discussion, including a tax reform. The electricity sector remains a fiscal vulnerability.

ESG considerations include political stability, rule of law, institutional quality, control of corruption, human rights, and creditor rights. These factors have varying degrees of relevance to the rating and are assessed accordingly.

Rating Sensitivities:
Negative factors that could lead to a downgrade include a sharp deterioration in public finances, external vulnerability, or failure to achieve strong growth. Positive rating action could result from improved fiscal flexibility, higher growth, or further governance improvements.

Country Ceiling:
The Country Ceiling for the Dominican Republic is in line with the Long-Term Foreign-Currency IDR, indicating no material constraints on capital or exchange controls.

ESG Considerations:
Dominican Republic’s ESG Relevance Scores are ‘5[+]’ for Political Stability and Rights, ‘5’ for Rule of Law, Institutional & Regulatory Quality, and Control of Corruption, ‘4[+]’ for Human Rights and Political Freedoms, and ‘4’ for Creditor Rights. These factors are considered relevant to the rating and are key rating drivers with varying impact on the credit profile.