The International Monetary Fund (IMF) staff mission reiterated its encouragement to the Ministry of Finance and the Central Bank yesterday to end all restrictions on current international trade in order to foster a more hospitable business climate that will encourage the diversification of the T&T economy.
The IMF team recommends that T&T lift its foreign exchange limitations while still having access to enough foreign currency to cover all present overseas transactions.
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Upon finishing its Article IV meetings with T&T authorities, the IMF expressed its encouragement in its final statement (Ministry of Finance and the Central Bank). From March 1–14, those consultations took place.
A more effective foreign exchange infrastructure, according to the IMF staff, would help minimize foreign exchange shortages.
“It would also help create a more conducive business environment for the private sector to invest and diversify the economy. Over the medium term, greater exchange rate flexibility would reduce the need for fiscal policy adjustments to restore external balance and create room for more counter-cyclical monetary policy (which would stimulate a slowing economy and slow an expanding one),” IMF staff stated.
“IMF staff encourages the authorities to remove all restrictions on current international transactions while providing sufficient foreign exchange to meet the demand for all current international transactions.”
The selling rate of T&T’s major exchange rate, the US to TT, is now restricted to a small range with a maximum of US$1 to TT$6.7997. This is one of the current limits of T&T’s foreign exchange system.
The quantity of foreign currency sold to authorized dealers is likewise restricted by the government. Due to this, local commercial banks—who are also authorized foreign exchange dealers in T&T—have had to limit the amount of foreign currency they may provide to clients, including both businesses and people.
Due to this, there is a thriving illegal market for US dollars, and payments for imports and international services are completed with significant delays.
In order to reduce capital flight and prevent inflationary pressure, the IMF team also suggested that the Central Bank raise its repo rate from the current level of 3.5%, which it has held since March 2020.
The IMF team explained, “Increasing the policy rate should be seriously considered to contain inflationary pressures and narrow the negative interest rate differentials with the US monetary policy rate. This would also help mitigate potential risks of capital outflows and reduce incentives for excessive risk-taking that could threaten financial stability.”
The Central Bank will next make a statement about monetary policy on March 31, 2023.
Since Jwala Rambarran, the previous governor of the Central Bank, raised it as a concern in 2014, T&T has been dealing with a persistent foreign currency shortage.
Colm Imbert, the finance minister, stated last Friday at the Hyatt Regency that T&T was not in a crisis but rather was facing a foreign exchange deficit.
He referred to the EXIM Bank’s introduction of a window in 2018 that makes it easier for non-energy firms to acquire foreign exchange.
“From what I have been told by the business community, it has been a very successful program. So far, we have put almost US$1 billion into that entity for distribution,” Imbert shared at the conference.
The IMF team’s statement from yesterday was not the first time the organization urged the government to solve the nation’s forex problems.
The IMF team also underlined the need for an adequate policy mix to maintain the exchange rate regime and recommended the elimination of limitations on existing international transactions at the conclusion of an Article IV consultation in November 2021.
Moreover, the IMF stated in a statement dated February 9, 2022: “A proliferation of special-purpose facilities at the EximBank to prioritize foreign exchange access to manufacturers, importers of necessities—including State-owned Enterprises—have produced a hybrid exchange rate system that is prone to inefficiencies …
“Staff also encourages the authorities to eliminate exchange restrictions and multiple currency practices in a planned manner while providing sufficient FX to meet the demand for all current international transactions.”
Imbert expressed his gratitude to the IMF team “for the thorough work and high-quality exchanges that have taken place during the two-week mission,” in a statement released yesterday.
Imbert continued, “The IMF’s acknowledgment of the prudence, resilience, and medium-term orientation of our fiscal policy is indeed gratifying, coming as it does after the multiple shocks faced by Trinidad and Tobago and the world economy over the last three years.”
Imbert commented on T&T’s exchange rate system.: “The IMF has encouraged us to continue ‘maintaining sound and consistent policies’ to support our current exchange rate arrangements while acknowledging the need to balance growth and price stability objectives.”
As of February 2023, T&T has US$6.75 billion in net official foreign reserves, enough to cover 8.5 months of imports.
