An­tho­ny Wil­son

Con­sul­tant Busi­ness Ed­i­tor

A staff mis­sion from the In­ter­na­tion­al Mon­e­tary Fund (IMF) yes­ter­day said it again “en­cour­ages” the Min­istry of Fi­nance and the Cen­tral Bank to re­move all re­stric­tions on cur­rent in­ter­na­tion­al trans­ac­tions as a means of cre­at­ing a more in­vest­ment-friend­ly busi­ness en­vi­ron­ment that would dri­ve the di­ver­si­fi­ca­tion of the T&T econ­o­my.

The ad­vice of the IMF team is that T&T should re­move for­eign ex­change re­stric­tions while pro­vid­ing enough for­eign ex­change to meet the de­mand for all cur­rent in­ter­na­tion­al trans­ac­tions.

The IMF’s en­cour­age­ment came in its con­clud­ing state­ment fol­low­ing the in­ter­na­tion­al fi­nan­cial in­sti­tu­tion’s Ar­ti­cle IV con­sul­ta­tions with T&T au­thor­i­ties (Min­istry of Fi­nance and the Cen­tral Bank). Those con­sul­ta­tions last­ed from March 1-14.

In the re­port, the IMF staff said a more ef­fi­cient for­eign ex­change in­fra­struc­ture would help elim­i­nate for­eign ex­change short­falls.

“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 said.

“IMF staff en­cour­ages the au­thor­i­ties to re­move all re­stric­tions on cur­rent in­ter­na­tion­al trans­ac­tions, while pro­vid­ing suf­fi­cient for­eign ex­change to meet de­mand for all cur­rent in­ter­na­tion­al trans­ac­tions.”

Among the cur­rent re­stric­tions of T&T’s for­eign ex­change regime in­clude the lim­i­ta­tion in the move­ment of T&T’s main ex­change rate, the US to TT, to a nar­row band in which the sell­ing rate is not al­lowed to go be­yond the ceil­ing of US$1 to TT$6.7997.

The au­thor­i­ties al­so lim­it the amount of for­eign ex­change that is sold to the au­tho­rised deal­ers. That has led lo­cal com­mer­cial banks, who are among T&T’s au­tho­rised for­eign ex­change deal­ers, to re­strict the amount of for­eign ex­change they are able to sell to cus­tomers, both com­pa­nies and in­di­vid­u­als.

This has re­sult­ed in a very ac­tive black-mar­ket trade in US dol­lars and long de­lays in the com­ple­tion of pay­ments for im­ports and for­eign ser­vices.

The IMF team al­so rec­om­mend­ed that the Cen­tral Bank should in­crease its re­po rate from 3.5 per cent, which it has main­tained since March 2020, as a means of head­ing off in­fla­tion­ary pres­sure and mit­i­gat­ing cap­i­tal flight.

The IMF team said: “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’s next mon­e­tary pol­i­cy an­nounce­ment is March 31, 2023.

T&T has ex­pe­ri­enced a chron­ic short­age of for­eign ex­change since 2014, when it was flagged as an is­sue by for­mer Cen­tral Bank gov­er­nor Jwala Ram­bar­ran.

Ad­dress­ing the Ja­maica trade mis­sion at the Hy­att Re­gency last Fri­day, Fi­nance Min­is­ter Colm Im­bert said T&T was ex­pe­ri­enc­ing a for­eign ex­change short­age, not a cri­sis.
He ref­er­enced the es­tab­lish­ment by the EX­IM Bank of a win­dow in 2018 that fa­cil­i­tates ac­cess to for­eign ex­change by non-en­er­gy man­u­fac­tur­ers.

“From what I have been told by the busi­ness com­mu­ni­ty, it has been a very suc­cess­ful pro­gramme. So far, we have put al­most US$1 bil­lion in­to that en­ti­ty for dis­tri­b­u­tion,” Im­bert told the con­fer­ence.

Yes­ter­day’s state­ment by the IMF team was not the first time the in­sti­tu­tion has called on the Gov­ern­ment to ad­dress the coun­try’s for­eign ex­change is­sues.

In No­vem­ber 2021, at the end of an Ar­ti­cle IV con­sul­ta­tion, the IMF team al­so “un­der­scored the need for an ap­pro­pri­ate pol­i­cy mix to sup­port the ex­change rate regime and called for the re­moval of re­stric­tions on cur­rent in­ter­na­tion­al trans­ac­tions.”

And in a Feb­ru­ary 9, 2022, state­ment, the IMF said: “A pro­lif­er­a­tion of spe­cial-pur­pose fa­cil­i­ties at the Ex­im­Bank to pri­ori­tise 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 de­mand for all cur­rent in­ter­na­tion­al trans­ac­tions.”

In a state­ment yes­ter­day, Im­bert thanked the IMF team, “for the thor­ough work and high-qual­i­ty ex­changes that have tak­en place dur­ing the two-week mis­sion.”
Im­bert added: “The IMF’s ac­knowl­edge­ment 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.”

On the is­sue of T&T’s ex­change rate regime, Im­bert said: “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.”

T&T’s net of­fi­cial for­eign re­serves as at Feb­ru­ary 2023 amount­ed to US$6.75 bil­lion, which pro­vides the coun­try with 8.5 months of im­port cov­er.