Friday, September 22, 2023

Has the debt of Dominican households grown?

The national press and all general opinion, very frequently addresses the issue of public debt and does so because it is of interest to economic agents, the people and the opinion makers themselves, who observe that it is a relevant issue and that it worries everyone associated with the financial burden of the Dominican State; However, the same does not happen with the debt contracted by Dominican households and that has nothing to do with the per capita debt that is usually offered as data on a continuous basis, derived from the total public debt.

Due to the level of public debt dissemination, it is widely known that its balance has grown, both in the centralized sector and in the consolidated debt. The first, went from US$43,091 million, September 2020 to US$54,721 million in April 2023, for a growth equivalent to US$11,630 million, and the second, rising at the same time from US$51,945 to US$71,944 million, for an increase of 19,999 million. In relative terms, the increase in debt is 26.9% and 38.5%, respectively.

It could be affirmed, with little risk of error, that the issue of public debt is of greater public domain than the debt of Dominican households. When addressing household indebtedness, you must consider at least the following aspects: that the level of household debt is in some way an expression of the degree of bankarization of an economy, also, that aggregate spending is influenced by the debt of households, the temporary liquidity of debtors, exposure to risks and the stability of the banking sector itself, which comes from households.

In addition, that credit to households allows them to have access to goods and services that, otherwise, in the absence of liquidity, could not be afforded, in the same way, a reduction in investment opportunities and the construction of a credit history that would later serve as a basis to expand its borrowing capacity.

But also, in contrast, households can find themselves with financial burdens that do not allow them to save and cover part of their recurring and extraordinary expenses, in the same way, they can expose themselves to over-indebtedness and credit dependency ties.

To the extent that other colleagues, professionals and communicators examine and give their opinion on the debt of Dominican households, it would help bring us closer to the construction of a culture on the subject, collaborating in the same way with early warnings in order to avoid potential annoying situations. for the family economy and the stability of the Dominican financial system.

The level of the debt balance of Dominican households has been growing, as has also happened to the Dominican economy. Particularly, as of December 2021, households in the country with access to credit from the national banking system had credit for an amount of RD$613,978 million, growing steadily since before and then, until April 2023 at a value of RD $774,461 million, for an increase of RD$160,483 million, equivalent to a nominal expansion of 26.1%.

In terms of the participation of credit to households with respect to the size of the economy, we have that, at the end of 2021 it was 11.5% of GDP and in April 2023 it was 12.4%, also of GDP, which means an increase in the Dominican household debt of 0.9 percentage points in the last 28 months.

At a constant 2020 price, the real value of credit to households has done the same, going from RD$540,474 million in December 2021 to RD$626,586 million in April 2023, for an increase of 15.9%.

When measuring the household debt of the Dominican family converted to US dollars, we find that it has also increased, going from US$10,741 million in 2021 to US$14,174 million as of April 2023, indicative that it has grown at a rate of 31.9%.

At the level of the breakdown of loans to households in the country, consumption has increased by 29.2%, mortgage loans by 21.4% and credit card loans by 30.5%, a sign that all three have risen to double digits. but credit cards stand out, for leading it in terms of growth and the lag of the mortgage portfolio with respect to the others, with the aggravating circumstance that mortgage credit has advantages due to its positive multiplier effects towards the rest of the economy. Thus, the level of indebtedness of Dominican households has been growing steadily in all its manifestations, in nominal terms, at constant prices, converted to dollars, and as a percentage of gross domestic product during the years from 2021 to 2023. .

The fact that the debt of Dominican households has been growing in an inflationary environment may expose debtors to a greater degree of vulnerability, both through the increase in the cost of money, and through the loss of purchasing power of monetary income, which forces its holders to more economic and financial commitments and even an increase in the risk of non-payment that affects the stability of the financial system.

Thus, the benefits received by household debt holders at the time of receiving financing, the sustained increase in debt in an inflationary environment, may have as a counterpart in the medium term, greater attention from makers and executors of public economic policies, in order to mitigate eventualities that affect macroeconomic stability.

The path that Dominican households have followed in terms of indebtedness is similar to that followed by the level of the balance of the loans that the public sector has taken, evidencing in both cases, an imbalance between the income and expenses of the households and the finances of the government.


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