Dominican Republic: Five challenges to overcome for achieving inclusive economic growth

Since the turn of the millennium, the Dominican Republic has been a success story in many respects. Over the past two decades, the economy has expanded three times faster than the Latin American average. This burgeoning growth has lifted 2.8 million Dominicans – almost a quarter of the population – out of poverty. As a result, the middle class now outnumber the poor, and quality of life overall has improved: including access to basic services, housing, and education.

However, the country's recent history, especially in the wake of Covid-19, displays a more nuanced pattern. The government responded rapidly and effectively to the pandemic: notably by expanding the coverage of its main social protection program and making it more generous. This prevented an additional increase of 6 percentage points in the poverty rate. Yet the global health crisis and its economic ramifications into the DR also exposed enduring structural challenges that persist despite the DR’s strong economic performance.

The Dominican Republic Poverty Assessment

Our recent poverty assessment provides a detailed snapshot of these challenges, along with policy recommendations to ensure that opportunities are available to all:

Challenge 1: Boosting the incomes of the poorest

The service sector has created many jobs, including in the health and education sectors as well as domestic workers, but productivity has stagnated at low levels for years. There is a mismatch between the skills and knowledge taught in schools and universities and those demanded by businesses. Income poverty is also gendered: women are overrepresented in informal and low-paid jobs.

To address this challenge, it is important to:

• Align curricula and skills more closely with labor market demands by offering learners vocational guidance services and more training in digital tools.
• Foster greater collaboration between the private sector and educational institutions.

Challenge 2: Investing in quality education, especially for women and girls

According to the poverty assessment and our recent gender diagnosis for the DR, women and girls are held back by high rates of teenage pregnancy, disproportionate household responsibilities, and discrimination at work. 

To improve their opportunities, and those of the poorest in general, it is important to:

• Increase school retention rates, particularly among young women.
• Broaden the coverage of the conditional cash transfer program to incentivize secondary education, AVANZA,  and strengthen its support for women.
• Help teenage mothers complete their education by boosting the childcare and preschool system.
• Implement early warning systems for students at risk of dropping out.
• Use existing student assessments to provide teachers with targeted training to address learning gaps.

Challenge 3: Reducing inequalities in disadvantaged areas

Even for those with adequate education, skills, and jobs, unplanned urbanization and poor connectivity in the Dominican Republic – both between regions, and between cities and the countryside – limit productivity. Meanwhile, poor-quality services and road networks hinder the potential of several population groups and areas.

Some recommendations to overcome these challenges include:

• Promote "smarter" urbanization with land-use maps and improved municipal planning.
• Invest in connectivity, technology, and public services.
• Strengthen the tax collection capacity of local governments, enabling them to implement infrastructure projects.

Challenge 4: Mobilizing more resources and spending more effectively in social programs

Low levels of revenue collection and social spending, combined with targeting errors, limit the coverage and effectiveness of some social protection programs in the Dominican Republic.

Proposed measures to resolve this include:

• Reduce targeting errors by updating poverty maps.
• Adjust the amounts provided by social programs to track inflation.
• Boost tax collection capacity.
• Reduce regressive water and energy subsidies to free up funding for financing higher-quality services and wider social programs.

Challenge 5: Mitigating the impact of climate change and shocks

The Dominican Republic is increasingly vulnerable to climate shocks, which disproportionately affect the poorest.

Our recommendations to tackle this include:

• Continue implementing and strengthening the system of temporary emergency cash transfers (such as the Bono de Emergencia) to alleviate the impact of climate shocks.
• Offer Dominicans incentives for adopting preventive measures (such as improving the resilience of their homes).

In essence, the proposed recommendations aim to unlock greater economic productivity, create a more inclusive labor market, encourage a dynamic structural transformation that unlocks the potential of neglected areas and population groups, and establish a more efficient and redistributive fiscal policy, including social assistance and protection measures.

Addressing these challenges will require a joint effort from the government, the private sector, civil society, and international partners. Sustained and inclusive growth is key to the Dominican Republic achieving its aspirations of becoming a high-income country.

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