Howai on foreign exchange supply: Teething problems with new system

Thanks to US dollars from foreign direct investment (FDI) by oil and gas companies, this country’s foreign exchange reserves will continue to grow, Finance and Economy Minister Larry Howai told reporters yesterday. He said so while fielding questions from reporters after he addressed the T&T Manufacturers’ Association’s (TTMA) Annual General Meeting and Breakfast at the Hyatt Regency Trinidad in Port-of-Spain.

“The Central Bank has just introduced a new (foreign exchange) distribution system. They thought we had outgrown the system we had before. They put a new system in place. The new system is different in very significant respects from the previous system. It’s almost like an options systems...it’s closer to that type of system,” Howai explained.

The minister expressed the view that “when you put any new system in place, there will be some teething problems, some unintended consequences, some things that you didn’t foresee. So I think what we’re experiencing now is part of trying to work through some of those areas, but our own expectation is that the level of foreign exchange reserves will continue to grow.” He said foreign exchange reserves are now “in the region of about 12 months of import cover.”

Asked if outward FDI is putting a strain on foreign exchange availability, Howai said that “has always been a challenge we’ve faced and it’s reasonable for people to diversify portfolios.” “We did see a reversal of (FDI) flows a few years ago, when there was an economic collapse internationally.

“On the other hand, on the inflow side, we expect to see significant increases as a result of the new investments, particularly offshore by the oil and gas sector. There are a number of fields that will be coming on stream and there are a number of platforms. That will mean an inflow of foreign exchange into T&T.” Howai said Central Bank Governor Jwala Rambarran will say more about the foreign exchange situation when he addresses a TTMA event in the next few weeks. .

Negative carry
On the net debt or negative carry alluded to in the 2014 International Monetary Fund’s (IMF) Article IV country report, Howai acknowledged that the country’s net debt in TT dollars exceeds how much the country has saved in the Heritage and Stabilisation Fund (HSF). However, he said, in US dollars—in which the HSF is denominated—the country’s foreign debt is lower than the US$5.1 billion in the HSF.

“In other words, the foreign currency component of the debt is still lower than the Heritage Fund’s (net asset value). If you include all the TT dollar debt, it is more than what we have in the Heritage Fund, but we are regarded as a very low-indebted country by international standards. Our debt to gross domestic products about 41 per cent, and internationally that would be considered a low level of indebtedness.”

The minister said “many countries are over 100 per cent. In the region, Jamaica, St Kitts and so on, are at that kind of level and most of the other islands in the Caribbean are well over 70–80 per cent.” He said the absolute value of debt has increased but “that is one of the reasons why our strategy, in terms of how we deal with the economy in the short term, was to try to grow the economy.” 

“The effect of that was that the total denominator would have expanded and therefore the numerator would have grown. The overall ratio has come down, from 45 per cent of GDP last year to now 41 per cent of GDP. “Notwithstanding the fact that the absolute value has increased, the relative value and our ability to service that debt, which is the most important thing, has improved.”

On reported low levels of unemployment in T&T—3.7 per cent as at March 31, 2013—bolstered by government make-work programmes, the minister said: “It is important for us, of course, is to grow the level of employment. The more people are employed, the more the economy itself can expand and grow. But the issue, of course, is the quality of jobs. 

“There are a number of people who are perhaps underemployed, and therefore we need to deal with those particular issues, so while we mention the overall figure for unemployment, I don’t want to suggest, or seem to suggest, that we’re saying that all the problems in that particular sector have been resolved. We have to invest in good quality jobs on an ongoing basis, and enhance the quality of skills of our people.”