Despite a decline in foreign reserves in the first half of the year, Trinidad and Tobago extended its foreign reserves import cover from 10 months to more than a year, says Finance Minister Karen Tesheira.Tesheira said the impact of the global recession was reflected on the local economy through lower imports, reduced investor and business confidence as well as some capital flight.
Despite this, there were sufficient foreign reserves to deal with the demand, and over time, she expected this outflow to subside.
Speaking after her first pre-budget presentation to constituents in Arima on Friday, Tesheira, Member of Parliament for D’Abadie/O’Meara, said, “While the norm is for countries to have about three months of import coverage, most countries in the Caribbean region had very little import coverage of only a few weeks, placing them in a very dangerous economic position.”

Foreign reserves

She said there was a 50 per cent reduction in the importation of cars, with smaller reductions in food items, capital goods and raw material imports. These reductions meant there were similar reductions in the overall demand for foreign reserves, thereby extending the level of import cover from 10 months to 13.6 months.
The value of imports for the first half of the year fell dramatically, led by a sharp decline in the first two months of the year by nearly 60 per cent to US$911 million. Central Bank Governor Ewart Williams said at a press conference on August 11 that apart from the economic slowdown, the increased demand for foreign reserves for investment may have been fuelled by the collapse of Clico at the end of January. He spoke of the difficulty banks likely faced in forecasting their foreign currency demands before submitting their requests to Central Bank.

He said reduced foreign currency sales from the energy sector meant that some commercial banks ran out of foreign currency from time to time as they awaited replenishment from Central Bank. In addition, he said there was a breakdown in the inter-bank foreign exchange sharing system as there wasn’t sufficient currency available to channel towards the banking outlets that were facing higher demand.
“Inevitably, some banks ran out of currency before the scheduled sale by the Central Bank, giving the impression there was a shortage. There was never a shortage. In fact, our foreign reserve position remained strong and import coverage was extended over the period as we saw a consistent dip in demand for imported goods and services since January.”

Williams said non-energy exports also slowed over the period further restricting the flow of foreign currency to the banking system.
“Authorised dealers net purchases of foreign exchange also declined in 2009, and the Central Bank will continue to support the market during periods of tightness through increased sales of foreign exchange.” Williams said the bank sold US$1.1 billion in foreign currency in the first seven months of 2009, more than twice the amount sold in the corresponding period of 2008.

Local sales

“In the short term, there are no signs that things are beginning to turn around,” he said. “Local sales of cement—a key indicator for the local construction sector—was down 7 per cent for the year and median house prices fell by 6.7 per cent to $800,000. The number and value of mortgage loans fell by 29 per cent and 20 per cent, respectively, and new motor vehicle sales declined by 41 per cent. “Lagging consumer and business confidence could make for a slow recovery in private sector credit demand while the prospects for a budget deficit leaves government with difficult choices for development.”

Williams said T&T’s economic infrastructure needed attention by government and many of the challenges, include dealing with the large subsidies that have become embedded in the budget.
In addition, several large projects from the previous year will demand further funding.