Raphael John-Lall
Former Central Bank governor and former finance minister Winston Dookeran has said that the recent report by S&P Global on declining liquidity in T&T’s banking system proves he was right when he published a paper last year saying T&T’s economy is in a “state of disequilibrium.”
In an interview with the Business Guardian, he said his analysis was “on track.”
“As I see the new S&P report on the liquidity decline in the banking sector, I recollect my analysis of the ‘disequilibrium trap’ in the paper. My argument, I am afraid, remains right on track.”
He called on T&T’s policy makers to take action quickly.
“Since I wrote this paper in October 25, the ‘disequilibrium’ I referred to in my analysis, has manifested in production (petrochemical sector); distribution (the retail sector); and now signs in the financial (bank liquidity sector). The crux of these disequilibria is in public finance in the macro framework, and other tools, as outlined in the paper. Public policy must respond to ‘how the economy actually works,’ or the populist imagination will lead to ‘a survival economy.’”
In banking, liquidity refers to a financial institution’s ability to meet its short-term obligations—such as depositor withdrawals, loan demands, and operational expenses—using cash, or assets quickly convertible to cash, without significant loss in value. It is a measure of financial stability, ensuring banks can pay bills and manage risks without facing a crisis.
The S&P Global bulletin was titled “Trinidad and Tobago’s banking industry risk trend turns negative on declining liquidity buffers.”
Pointing out that liquidity in T&T’s banking sector is weakening, S&P Global said this shift could reduce the system’s resilience in stress scenarios, prompting its negative industry risk assessment.
“The Trinidad and Tobago (T&T) banking industry’s liquidity strength is eroding, which could reduce the industry’s resilience in the face of hypothetical distress scenarios. As a result, S&P Global Ratings revised its banking industry risk trend for T&T (BBB-/Negative/A-3) to negative from stable.”
S&P Global said T&T remains in Banking Industry Country Risk Assessment (BICRA) group 6, a category that reflects elevated industry risk relative to global peers.
The ratings agency stated that pressure stems from ongoing fiscal challenges and the country’s heavy reliance on energy revenues, which remain highly volatile. Because of this, S&P said it may no longer view liquidity as a structural strength of the banking system unless recent trends reverse this year.
T&T’s Central Bank: Liquidity fell from $6.6 billion in May to $3.5 billion in October in 2025.
According to the Central Bank’s Monetary Policy Report released for November-December 2025, excess liquidity in T&T’s banking system has been slipping over the past months.
Disequilibrium trap
While Dookeran said banking liquidity was not specifically mentioned in the budget last October, he did note other economic challenges that are symptoms of the same problems.
“The liquidity situation was not raised in the last budget statement. The measures I was referring to had to do with financing challenges and how to meet the gap between expenditure and revenue. It seems that that gap is being met by drawdowns on the Heritage and Stabilisation Fund and borrowings (external).”
Referring to his original paper, Dookeran explains that a “disequilibrium trap” arises when the combined forces of the market and the state persistently produce mismatches between supply and demand, preventing the system from reaching stability.
He argues that T&T’s economy continues to be in such a state.
“A cursory review of current data suggests that T&T is experiencing all three types of disequilibria: The cyclical volatility of the foreign exchange market and the imposition of new tariff measures; the secular shifts in production functions and consumption behaviour; and the structural transformations in the finance equation including pension funding and changes in the tradable–non-tradable balance.”
Dookeran argues all three factors converge to create widespread imbalances in the balance of payments.
He opined that T&T will not overcome this decades-old problem overnight.
“The pathway to a high-level equilibrium cannot be immediate. It requires a long-term horizon, punctuated by short-term adjustment measures that incrementally steer the economy towards stability. At the centre of this transition must be the restoration of balance in the external accounts, the balance of payments, complemented by the design of a sustainable finance equation, recalibrated on an annual basis.”
Solutions
Given the latest S&P report, Dookeran offered solutions which he hopes T&T’s policymakers would consider.
“Fixing the financials in the T&T economy, requires monetary swaps with other central banks, restoring financial stability in the National Insurance board, monetising CL financial assets under the control of the government with financial swaps that increase cash flow without increasing the burden of the national debt, a more flexible exchange rate within the regime of the managed float and transparent budget figures that instill confidence in the markets. The growth trajectory must be catalytic to move from a survival economy to one of endogenous growth as the first order to arrest the disequilibrium in the system,” he said.
To counter some of the problems that now exist, Dookeran also referred to the original paper he published last October and presented at the University of the West Indies (UWI).
One of the priority areas he highlighted is the stability of the balance of payments.
He explained that the balance of payments is the central monitor of a nation’s economic relationship with the rest of the world and for open economies like T&T, its stability is not optional, it is essential to survival and sustainability.
He also spoke about the importance of raising the country’s saving rate.
He then said encouraging investments with net inflows of funds is also important.
Dookeran believes that another important area that the Government must deal with in trying to stabilise the economy is a sustainable finance framework.
“A sustainable finance framework aligns fiscal and monetary policies with national revenue and investment capacity, ensuring that growth is not dependent on excessive debt or short-term inflows.”
Action to be taken
Former senior economist at Republic Bank, Dr Ronald Ramkissoon told the Business Guardian that because liquidity in the banking system is weakening, action must be taken such as diversification of the economy and improving the fiscal balance.
“There is little cause for concern in the short run because the banks have built up a relatively solid foundation as reflected in the various key ratios over the years. However, in the medium to long run and as indicated in the recent S&P Global bulletin, major action has to be taken on several fronts if banks are to remain resilient financial intermediaries in which customers feel confident. The bulletin points to critical areas for attention including, the fiscal balance, the exchange rate and diversification of the economy.”
He added that there can be a reduction in the reserve requirement as was done in the past.
“However, bank liquidity and excess reserves must remain relatively high in an economy such as this one, in order to address any adverse condition that might arise. In this context the loan to deposit ratio is critical and must remain comfortable and nothing must be done that is likely to threaten depositors’ confidence in the system. Specifically, policy makers mustdemonstrate fiscal responsibility, improve the business environment, promote confidence by business and consumers in governance, and ensure decision-making at commercial banks and in the economy in general is more market driven rather than government dictated.”
