Joel Bhag­wandin

Fi­nan­cial An­a­lyst

My at­ten­tion was drawn to a state­ment made by Trinidad & To­ba­go’s (T&T) High Com­mis­sion­er to Guyana, Con­rad Enill. In his state­ment, he as­sert­ed that there is no short­age of for­eign cur­ren­cy (forex) in T&T in re­sponse to claims made by Guyana’s Vice Pres­i­dent, Dr Bhar­rat Jagdeo. To sub­stan­ti­ate his claim, the Am­bas­sador went on­to state that Guyana’s for­eign re­serve is equiv­a­lent to 1.4 months im­port cov­er where­as T&T is the equiv­a­lent of 8.6 months im­port cov­er as of the end of 2022.

How­ev­er, the High Com­mis­sion­er’s fig­ure for Guyana is in­cor­rect. The fact is that Guyana’s for­eign re­serve has im­proved since the PPP/C Gov­ern­ment was re-elect­ed in 2020. Be­fore the gen­er­al elec­tions, Guyana’s re­serves were be­low two months im­port cov­er dur­ing that pe­ri­od but has im­proved to 3 months im­port cov­er at the end of 2022.

As shown in ta­ble one, in 2014 T&T’s net forex re­serves stood at US$11.5 bil­lion which rep­re­sent­ed 12.9 months im­port cov­er. By the end of 2022, the forex re­serves de­clined by US$4.665 bil­lion to US$6.8 bil­lion, the equiv­a­lent of 8.6 months im­port cov­er. In the case of Guyana, for the same pe­ri­od, in 2014 the forex re­serve stood at US$652 mil­lion rep­re­sent­ing 4.4 months im­port cov­er, which fell be­low 3 months im­port cov­er dur­ing the pe­ri­od 2018-2019, and in 2021. At the end of 2022, the forex re­serves in­creased to US$932 mil­lion, up from 2.2 months im­port cov­er in 2021 to 3.1 months im­port cov­er.

Read­ers would re­call that in my pre­vi­ous es­say on this mat­ter, I point­ed out that T&T and Guyana op­er­ate two dif­fer­ent ex­change rate regime. In this re­gard, T&T op­er­ates a fixed ex­change rate regime, in­ter alia, en­forc­ing strict ex­change rate con­trols es­pe­cial­ly at times when the coun­try’s forex re­serves is de­plet­ing at an alarm­ing rate.

Typ­i­cal­ly, coun­tries with fixed ex­change rate sys­tem usu­al­ly set the ex­change rate at a lev­el that over­val­ues the lo­cal cur­ren­cy. The dis­ad­van­tages with this type of ex­change rate sys­tem, which T&T is ex­pe­ri­enc­ing for the past sev­en years or so, are that:

• ↓the sit­u­a­tion is not ten­able in­def­i­nite­ly, for­eign re­serves dwin­dle fast;

• ↓the on­ly way to sus­tain this sys­tem is to im­ple­ment con­trols, and

• ↓the pri­vate mar­ket usu­al­ly re­sponds with an il­le­gal or par­al­lel cur­ren­cy mar­ket.

The sit­u­a­tion de­scribed at (iii) above may have been con­tained, be­cause T&T com­pa­nies that are op­er­at­ing in oth­er mar­kets such as Guyana, have been sourc­ing forex from those mar­kets, and this has been con­firmed by the Guyanese au­thor­i­ties.

With that in mind, T&T may not have a forex short­age in a re­al sense at the mo­ment—from the per­spec­tive of the lev­el of the coun­try’s net forex re­serve rel­a­tive to their im­port cov­er. Nonethe­less, they do have a se­ri­ous prob­lem where­in the forex re­serve has been de­plet­ing at a rel­a­tive­ly fast rate, which could cul­mi­nate in­to an eco­nom­ic cri­sis in a few years’ time.

The cur­rent eco­nom­ic sit­u­a­tion in T&T can be par­tial­ly ex­plained by the ex­ter­nal trade da­ta in the above ta­ble 2. En­er­gy ex­ports ac­counts for 80-86 per cent of to­tal ex­ports. Since 2015, en­er­gy ex­ports amount­ed to US$9 bil­lion, which fell be­low this amount in 2016-2017, re­bound to 2015 lev­el in 2018, and fell be­low that lev­el again in 2019 through 2021, record­ing its low­est lev­el at US$4.3 bil­lion dur­ing the pe­ri­od. The non-en­er­gy ex­ports al­so fell be­low the 2015 lev­el of US$2.6 bil­lion to less than US$2 bil­lion from 2016-2020, then re­bound­ed to just over $2 bil­lion in 2021-2022, but less than where it was in 2015.

This out-turn is in­dica­tive of T&T’s fail­ure to ad­e­quate­ly di­ver­si­fy the non-oil econ­o­my, hence their heavy re­liance on the en­er­gy sec­tor, de­spite be­ing an oil and gas pro­duc­ing econ­o­my for over a cen­tu­ry.

On the oth­er hand, Guyana is keen to avoid this in the long term, viz-a-viz, the gov­ern­ment’s com­mit­ment to ex­e­cute an ag­gres­sive, ex­pan­sive de­vel­op­ment agen­da aimed at di­ver­si­fy­ing the non-oil econ­o­my.

Ta­ble 3 be­low il­lus­trates an in­ter­est­ing per­spec­tive, where­by for the pe­ri­od 1992-2022, Guyana has out­per­formed the T&T econ­o­my by al­most 35 times over.

In 1992, T&T’s GDP stood at US$5.44 bil­lion with a per capi­ta in­come of US$4,231, which in­creased by 308.27 per cent to reach US$22.21 bil­lion, and 277.83 per cent to reach US$15,986 re­spec­tive­ly, by the end of 2022.

For the same pe­ri­od, span­ning three decades, Guyana’s GDP stood at US$370 mil­lion and per capi­ta in­come was US$500 in 1992. Bear­ing in mind that Guyana was a bank­rupt econ­o­my at that time, which T&T helped by gen­er­ous­ly writ­ing off Guyana’s debt with T&T at that time, in an ef­fort to re­duce the debt bur­den. By the end of 2022, re­al GDP in­creased cu­mu­la­tive­ly by 3,764.86 per cent to reach US$14.3 bil­lion, and per capi­ta in­come in­creased cu­mu­la­tive­ly by 3,559.28 per cent to reach US$18,333, sur­pass­ing T&T’s per capi­ta in­come of US$15,986 in 2022.

Fi­nal­ly, Guyana is poised to be­come the eco­nom­ic back­bone of the re­gion, a role that T&T car­ried for decades. It is cru­cial, there­fore, that T&T rec­og­nizes this as a pos­i­tive de­vel­op­ment and po­si­tions it­self to work with Guyana and the rest of the re­gion.

In this re­gard, Guyana still needs tremen­dous amount of sup­port to de­vel­op its own re­sources in terms of hu­man, phys­i­cal, tech­no­log­i­cal, fi­nan­cial, and its ca­pac­i­ty, to ef­fec­tive­ly pur­sue its de­vel­op­ment goals. Here­in lies the op­por­tu­ni­ty for T&T to as­sert it­self as a strate­gic part­ner to ad­vance the eco­nom­ic pros­per­i­ty of both coun­tries.