(Bloomberg) — Dominican Republic’s bonds fell after President Luis Abinader withdrew a bill that aimed to increase tax collection, dampening hopes the nation will be upgraded to investment grade.
Dollar notes paced emerging-market losses on Monday, with those maturing in 2060 losing as much 2.6 cents on the dollar to trade below 90 cents, according to indicative pricing compiled by Bloomberg.
Abinader said on Saturday he pulled his proposed tax overhaul after recognizing it lacked enough support in Congress, according to a statement on the presidency’s website.
The measure was considered necessary to raise one of Latin America’s lowest levels of tax collection and tackle a rising debt burden. Abinader planned to use his party’s majority in Congress to pass the bill, but its introduction was met with stiff backlash, including days of street protests and pushback from major business groups, including the tourism association, which represents one of the nation’s main economic drivers.
“The withdrawal is a significant setback to his goal of securing investment-grade status for the Dominican Republic during his tenure,” Ricardo Penfold, a managing director at Seaport Global in New York, wrote in a note to clients. “How fiscal consolidation will be achieved remains unclear, despite a fiscal rule limiting real-term primary spending.”
Fitch Ratings and Moody’s Ratings both have the Dominican Republic rated three notches below investment grade, while S&P Global Ratings scores it one level higher at BB.
Tax Measures
The tax measure sought to boost revenue by 1.5% of gross domestic product by raising income, corporate and property taxes, among others. It also aimed to reduce incentives provided to the film and tourism industries.
The “fiscal modernization” bill had been one of Abinader’s main campaign promises as he won reelection in a landslide in May, and he said the long-delayed overhaul was key to boosting public spending and reducing the deficit.
In a nationally televised speech Saturday, Abinader said the country needs the reforms but that he would go back to the drawing board.
“A true democratic government doesn’t fear changing its decisions when it has heard the people,” he said. “I’m a president who listens. I am not isolated, I don’t live in a bubble.”
–With assistance from Jim Wyss.
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