Home' Trinidad and Tobago Guardian : July 10th 2014 Contents JULY 2014 • WEEK TWO www.guardian.co.tt BUSINESS GUARDIAN
NEWS | BG7
The executive board of the International
Monetary Fund (IMF) has taken note of
T&T s recurring shortages in the foreign
exchange market and is encouraging the
local authorities "to allow for sufficient
flexibility in the operation of the market
to ensure that it clears, especially given
the ample foreign exchange reserves."
The executive board s assessment came in a draft press
release of the institution s June 2014 Article IV Consultation
with T&T, which was made available to the Business Guardian
in advance of being approved by the Government.
In the draft, the IMF states: The external current account
surplus has rebounded to over 10 per cent of GDP and reserves
are at 12 months of imports.
"However the foreign exchange allocation system, although
it had generally worked well for several years, led to fairly
widespread and persistent foreign exchange shortages, as
supply and demand imbalances grew from late 2013.
"A recent series of actions by the Central Bank has improved
supply of foreign exchange to the market."
In a statement on July 2, the Central Bank announced that
it had sold an additional US$100 million to authorized foreign
exchange dealers, which was "timed to offset anticipated lower
inflows into the foreign exchange market in the coming weeks
as a result of expected lower conversions by energy companies
and to alleviate demand pressures ahead of the busy travel
According to the Central Bank, the sale brought its total
sales to the financial system for the first six months of 2014,
to $US 690 million, or equivalent to one-fifth of the total
supply of foreign exchange to the market.
"With today s intervention the total sales of foreign exchange
by CBTT to the banking system amounts US$790 million for
the year to date. The Bank continues to monitor conditions
in the domestic foreign exchange market, and will take further
action, if necessary."
The Central Bank also said that in June 2014 there was an
excess of US$90 million dollars in the banking system as the
supply of foreign exchange exceeded demand and that supply
was strong as energy companies converted US$483 million to
meet their quarterly tax obligations and Central Bank injected
US$80 million into the system.
"The highly liquid foreign exchange market contributed to
the weighted average selling rate of the US dollar appreciating
to its highest level in four years," the Central Bank said, refering
to the fact that the US dollar exchange rate at several commercial
banks had appreciated to $6.3733 to US$1 from $6.46 to US$1.
Central Bank Governor Jwala Rambarran introduced a new
foreign exchange allocation system on April 1 (All Fools Day)
in which the non-competitive allocation by the institution to
the market was reduced from 60 per cent to 10 per cent. This
amount was to be shared equally among 12 authorized dealers,
which was increased from eight commercial banks before the
change. This meant that each authorized dealer received 8.33
per cent each.
The April 1 system led to complaints from importers and
manufacturers about the unavailability of foreign exchange,
which led the Central Bank to change from its April 1 revi-
As of July 1, 50 per cent of the Central Bank s supply of
foreign exchange is being allocated (increased from 10 per cent
after April 1) and the country s five commercial banks are
receiving foreign exchange amounts similar to before April 1.
In its draft statement, the IMF said that T&T s unemployment
rate had fallen to 3.75 per cent, but that "this masks sizeable
underemployment in government make-work programmes."
The IMF also predicted that T&T s fiscal balance was likely
to improve in the 2014 fiscal year, with the deficit falling to
1.5 per cent of GDP, but that this reduction in the fiscal deficit
was "largely for ad hoc reasons rather than durable improve-
ments in revenues or expenditures."
The institution returned to previous admonitions of the
T&T government, advising the implementation of measures
to save more of the country s nonrenewable energy wealth
and the limitation of current expenditures, while increasing
growth-enhancing capital spending.
"Such policies would likely pose near-term headwinds, but
enhance competitiveness and boost potential growth in the
non-energy sector. However, significant reforms are likely to
be delayed by the electoral calendar," according to the IMF.
The Washington DC-based institution also had some advice
for the T&T Central Bank in terms of increasing interest rates,
stating: "Directors concurred that the authorities should stand
ready to start tightening monetary policy in view of the reduced
labour market slack and high consumer credit growth, and
to prepare for the spillovers from the normalisation of monetary
policy in the United States.
"Implementing this tightening, however, could be complicated
by banks excess liquidity and the weak monetary transmission
"Against this background, directors concurred that tighter
prudential regulations could be considered."
The directors also welcomed the Government s attempts to
improve the budget outturn for the 2014 fiscal year, underscoring
"the importance of moving toward fiscal surpluses as soon
as feasible, using more durable improvements in revenues and
expenditures, in order to make better use of the country s
non-renewable energy endowment."
IMF comments on T&T's
foreign exchange situation
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