Public Finance and Social Sector Development Policy Loan

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The objective of the Public Finance and Social Sector Development Policy Loan Program for Dominican Republic (DR) is to improve the quality and efficiency of public spending, especially for poverty reduction and human development. The DR is a middle income country on the eastern part of the Caribbean island of Hispaniola, which it shares with Haiti. With a population of 9.8 million and a land area of 48,700 sq km, it is on both dimensions the second largest country in the Caribbean, after Cuba. Tourism, mining, and light manufacturing are the main exports. Foreign direct investment was about 3.8 percent of gross domestic product in 2007, and remittances were about 7.3 percent. For over a decade the DR has had competitive elections and peaceful alternation of parties in power. As in most middle income countries, politics play a key role in economic policy and the reduction of poverty. The Government plan for 2008-2012, calls for accelerating public sector reforms that began in the previous administration are: (a) improving the efficiency and quantity of public services; and (b) providing the fiscal space to fund priority social and investment programs, consistent with its four-year plan, the government is also preparing a longer term development program: the 'national development strategy', a comprehensive ten year plan addressing long term challenges of growth and social cohesion. The current global recession is taking a large toll on the economy by increasing debt servicing costs and weakening growth, income from tourism, and remittances. The Dominican Republic faces substantial challenges from the current global crisis. The government's reform program has become urgent, as the country's present economic and fiscal trajectory is not sustainable. Its importance is evident. External financing constraints have materialized and interest rate spreads on the DR international borrowing increased substantially since September 2008. The government also wants to avoid the reversals of social programs experienced in previous crises.