Friday, March 24, 2023

The public debt of the Dominican Republic grows with each administration of the Government

The rapprochement of the electoral competitions raises issues of debate, among which the debt of the non-financial public sector (SPNF) does not escape, which is increasingly higher, not only to cover the budgetary fiscal deficit, but also to pay maturities of the indebtedness itself.

The debate centers on which President has indebted the country the most and, although the answer is known, there will always be reasons to justify its increase and not actions to contain it over time.

Official statistics indicate that in the last two decades each president has surpassed the previous one in absolute increase in debt and indebtedness, for which reason the current president, Luis Abinader, is currently the one who has proportionally indebted the country the most.

The determination is simple, it is enough to review the accumulated debt each year and take the annual averages during each government period. However, some elements must be taken into account, such as the fact that each government period begins on August 16 between four-year periods, which indicates that in that year, the new President governed four and a half months, a time within which he could increase debt.

The graph of this analysis shows the increase in debt in the annual calendar average, that is, closed on December 31 of each year, not on August 16.

How much has public debt grown?

During the four-year period 1996-2000, in the first government of Leonel Fernández, the SPNF’s debt did not increase, because the National Congress, with an opposition majority, did not approve its debt issues. During this period, Fernández had to bet on administrative and collection efficiency to “pay off” the budget, which gave him the desired result.

For 2000-2004, during the administration of Hipólito Mejía, there was a financial and economic crisis that forced the State to increase its indebtedness, this time with a congress with an official majority, for which reason the public debt went from US$3,243.5 million to US$ $6,585 million, for an annual average, in a calendar year, of US$835.3 million in absolute increase.

Meanwhile, upon his return to power for two consecutive terms, the Fernández administration, 2004-2008-2012, took advantage of his congressional majority and changed his form of efficient government in administrative terms, collection and rational use of resources, for that of public indebtedness, bringing the state mortgage up to US$19,463.3 million, which results in an average annual increase of US$1,609.7 million.

Subsequently, Danilo Medina assumed power, who also directed the destiny of the country for two periods of four years (2012-2016-2020).

During his tenure, the debt of the SPNF increased to reach US$44,622.3 million, for an average annual increase of US$3,144.8 million, which crowned him the most indebted president of the State until the end of his term.

Then, Luis Abinader arrived for the 2020-2024 period, who in just two years (2021 and 2022) has caused an increase in public debt that placed it at US$51,854.5 million. That yields an annual average of US$2,616.1 million, which has surpassed Medida as the president who has increased the NFPS debt the most in absolute terms.

pandemic for two

If the public debt cut was broken on August 16, 2020, when the change of government took place, the last 4.5 months of that year were managed by Abinader, during which time the public debt increased considerably to face economic constraints caused by covid-19.

This situation would show that the increase in public debt in that year is shared, since 7.5 months were directed by Medina, with four months of pandemic, and the rest by Abinader, also during the virus.

For this reason, it is possible that Medina’s average annual debt is somewhat lower and Abinader’s is slightly higher, although the differences do not change the result that each president exceeds his predecessor in debt.

Increase in public debt

The constant increase in public debt is always justified by the fact that the State’s income is not enough to cover expenses and it is necessary to borrow in order to satisfy the difference.

One option would be to have an increase in State collections that contributes to reducing the fiscal deficit, but this would imply increasing or creating more taxes. The other option is to reduce public spending, something that is preached by the opposition, but already in government, politicians realize that it is difficult to make cuts in the midst of so many social demands.


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