GEISHA KOWLESSAR-ALONZO
T&T born Caribbean Economist Marla Dukharan is contending that on average over US$2 billion “disappears” from this country, adding that on a per capita basis, T&T is the world’s largest losers of foreign currency.
She made the comments in an essay titled, “T&T is the world’s largest loser (not user) of foreign exchange” in her July 2024 Caribbean Monthly Economic Report, which was released last Wednesday.
Members of the local business community continue to express concerns about the availability of foreign exchange, which has negatively impacted business sustainability in some instances.
However, in looking deeper at the issue of T&T’s foreign exchange regime, Dukharan said, “When next you hear the authorities say Trinbagonians demand too much foreign exchange, we import too many ‘luxury’ items, we shop online too much, we use foreign credit cards too much, we travel too much, and we get blamed for all the foreign exchange problems in T&T, stop and think about this; for the past 12 years (2011-2023), over US$25 billion has gone missing from our country.
“On average, over US$2 billion each year just disappears, and nobody has been able to account for it, ever. But have you ever seen this in the news?”
Using the International Monetary Fund’s (IMF) global database with data for 2011 to 2022, Dukharan further noted that the errors and omissions (E&O) item for T&T shows a net outflow of US$23 billion that “we can’t account for.” The additional US$2 billion comes from Central Bank data, she said.
She said errors and omissions is supposed to be an insignificant balancing item due mainly to statistical errors on the balance of payments account, which accounts for all the cross-border transactions of a nation, such as international trade, foreign direct investment remittances.
She said the US$25 billion that has gone missing is about 77 per cent the size of the economy (2022, IMF) and over US$16,000 per person.
“On a per capita basis, we are the world’s largest losers of foreign currency, meaning if we take errors and omissions losses and divide it by the country’s population, we have lost the most globally. Only 20 countries globally have lost more in absolute US-dollar term than we have from 2011 to 2022. And if T&T’s errors and omissions losses are divided by our gross domestic product (GDP) only three countries – Djibouti, Liberia and the Marshall Islands – have lost more relative to GDP,” Dukharan further stated.
Noting that T&T’s national debt level is lower than 77 per cent of GDP, Dukharan said this means T&T has lost more US dollars than the Government has borrowed.
“...T&T is the only country in the region where reserves consistently trend downwards, declining by 48 per cent from the US$11.5 billion peak in 2014 to US$5.98 billion in June 2024. In the absence of Government borrowing and withdrawals from the Heritage and Stabilisation Fund (HSF), T&T’s foreign exchange reserves would be only US$157 million in March 2024, which is roughly one week of import cover,” she said.
E&O haemorrhaging?
Dukharan also asked what explains errors and omissions haemorrhaging as she looked at the statistical infrastructure.
In a subhead titled, “We lose the most US dollars per capita in the world via errors and omissions” Dukharan explained, “The weaker the statistical infrastructure, the less accurate the data will be, so this (not surprising given our overall weak and declining institutions) is one likely explanation. But if statistical weakness was the biggest explanatory factor, one would expect the errors and omissions item to be a fairly random number – positives and negatives, large and small.
“But T&T’s errors and omissions item has been consistently negative every year since 2011 (the earliest data available), meaning we have an undocumented net outflow of US dollars each year that we can’t account for. Furthermore, apart from 2012 and then 2020 to 2021 (COVID) the E&O item has consistently exceeded US$1 billion each year, the highest being US$4.8 billion in 2013. And this pattern in the data suggests that something else, apart from statistical weakness, is at play,” she said.
According to Dukharan, the TT dollar is overvalued versus the black market foreign exchange rate which ranges from TT$7.50 to 10.00 to US$1, adding that by maintaining the exchange rate at roughly TT$6.76 to US$1, the Government is effectively subsidising the sale of US dollars and therefore, artificially creating a level of (speculative) demand for US dollars that would otherwise not exist at “say TT$10.00/US$.”
Furthermore, she said the unavailability of US dollars creates a level of precautionary demand for US currency that does not exist elsewhere in the Caribbean, for example.
All of this, Dukharan said drives a lack of confidence in the TT dollar and a preference for US dollars and capital flight.
“The Government has created a massive incentive for us to find, earn, buy, hold and take overseas as much US dollars as we can. And this perverse incentive, combined with our weak institutions and poor crime detection is flammable, bleeding into the (regional, gang-related) crime associated with the northward movement of narcotics, and the safe return (and laundering) of US dollars back to the producers primarily in Latin America,” she added.
Stating that the best way for US dollars to leave T&T “undocumented” is via cash and portable, valuable goods such as jewelry, Dukharan said she was certain that it is “purely coincidental that our errors and omissions losses took off just when the previous Government introduced direct flights to Panama and London (reputed to be money laundering hotspots), and that our errors and omissions losses were lowest during the COVID-19 pandemic when our borders were closed.”
She also noted that as with traffic jams and crime, this country loses immeasurable precious time, effort, talent and perhaps even lives, navigating the nation’s US-dollar shortage created not by any error or omission, but by successive Governments’ deliberate and harmful policy choices.
Last year, Finance Minister Colm Imbert noted that the demand for forex has been fuelled partly by “an explosion in online shopping over the last several years.”
To deal with the forex problem, commercial banks have placed a limit on the amount of US dollars that can be spent in any credit cycle.
Economist Dr Indera Sagewan noted that the announcement, two weeks ago, by RBC that there will be a reduction in its foreign currency spending limit for credit cards is merely a reflection of the ongoing forex crisis in the country.
That, she said, is yet another blow to small and medium-sized Enterprises (SMEs) sector, who are already finding difficulty in accessing foreign currency to purchase goods.
“For many of them, it the only way they can do international transactions because they too can’t go to the bank and have easy access to foreign exchange. So by and large, it is the only mechanism that is available to them. To further restrict that means that the ability to run your businesses will now be further constrained,” Sagewan stated.
In its notice, RBC said effective September 1, 2024, foreign exchange limits on RBC credit cards for both personal banking and business banking clients will be reduced from TT$51,000 (approximately US$7,500) to $41,000 (approximately US$6,000).
This came just under a year after Republic Bank slashed the US spending limit on its credit cards in half from US$10,000 to US $5,000 from September, 21, 2023.
