On Ju­ly 10, Gov­er­nor of the Cen­tral Bank of T&T, Lar­ry Howai—ac­com­pa­nied by Min­is­ter of Fi­nance, Dav­en­dranath Tan­coo, Min­is­ter of Plan­ning, Eco­nom­ic Af­fairs and De­vel­op­ment, Kennedy Swarats­ingh and Min­is­ter of En­er­gy and En­er­gy In­dus­tries, Dr Roodal Mooni­lal—met with key stake­hold­ers in the lo­cal en­er­gy sec­tor. The meet­ing, ac­cord­ing to a news re­lease from the Cen­tral Bank on the same day, “cen­tred on mea­sures to ad­dress on­go­ing for­eign ex­change (forex) chal­lenges. The meet­ing was con­struc­tive and col­lab­o­ra­tive, with par­tic­i­pants ex­press­ing sup­port for a se­ries of near-term ini­tia­tives to im­prove for­eign ex­change avail­abil­i­ty and dis­tri­b­u­tion.”

The Cen­tral Bank state­ment in­di­cat­ed that en­er­gy sec­tor con­ver­sions re­mained the pri­ma­ry source of for­eign ex­change in­flows, ac­count­ing for ap­prox­i­mate­ly 60-75 per cent of to­tal mar­ket con­ver­sions.

“How­ev­er, over the past decade, for­eign ex­change sales by en­er­gy com­pa­nies have de­clined by an es­ti­mat­ed US$1.2 bil­lion an­nu­al­ly, sig­nif­i­cant­ly re­duc­ing the sup­ply avail­able to the do­mes­tic econ­o­my. At the same time, de­mand for for­eign ex­change con­tin­ues to out­pace sup­ply.

“While im­prove­ments are ex­pect­ed in the sup­ply of lo­cal oil and gas from late 2027, the Cen­tral Bank, work­ing in close col­lab­o­ra­tion with the line Min­istries, recog­nis­es the need for tar­get­ed, short-term in­ter­ven­tions.

“The Cen­tral Bank reaf­firmed its com­mit­ment to work­ing close­ly with the en­er­gy sec­tor and oth­er stake­hold­ers to strength­en for­eign ex­change man­age­ment. Al­though such in­ter­ven­tions can­not, on their own, in­crease over­all forex sup­ply, the ini­tia­tives be­ing put in place are ex­pect­ed to im­prove dis­tri­b­u­tion out­comes and pro­vide mean­ing­ful re­lief in the near to medi­um term.”

It seems to me that the Cen­tral Bank is at­tempt­ing to deal with the symp­toms rather than the cause of our malaise: The bank is ad­dress­ing is­sues of the dis­tri­b­u­tion and al­lo­ca­tion of for­eign ex­change with­out look­ing at the far more con­se­quen­tial is­sues of the struc­tur­al im­bal­ance be­tween the de­mand and sup­ply of for­eign ex­change at the ceil­ing price of $6.7993 to US$1.

And from what the Cen­tral Bank in­formed the T&T pop­u­la­tion on Ju­ly 10, the im­bal­ance be­tween the de­mand for for­eign ex­change and the sup­ply of it, is not im­prov­ing, giv­en the in­sti­tu­tion’s com­ment that the sup­ply of for­eign ex­change by en­er­gy com­pa­nies has de­clined by US$1.2 bil­lion in the last decade, while de­mand “con­tin­ues to out­pace sup­ply.”

It is note­wor­thy, though, that a ta­ble in the May Mon­e­tary Pol­i­cy Re­port out­lines that the pur­chas­es of for­eign ex­change from the pub­lic, which is the sup­ply of for­eign ex­change, in 2025 amount­ed to US$4.030 bil­lion, which is 22.2 per cent more than the US$3.298 bil­lion sup­plied six years ear­li­er in 2020.

The 2025 de­mand for for­eign ex­change, ref­er­enced as the sales to the pub­lic by au­tho­rised deal­ers, to­talled US$5.462 bil­lion, which was 21.2 per cent more than the 2020 de­mand of US$4.504 bil­lion.

For each of the six years be­tween 2020 and 2025, the de­mand for for­eign ex­change ex­ceed­ed the sup­ply, which to me is the de­f­i­n­i­tion of a struc­tur­al im­bal­ance. The im­bal­ance was ad­dressed by the Cen­tral Bank sup­port­ing de­mand for for­eign ex­change by sell­ing US$7.767 bil­lion to au­tho­rised deal­ers in the six-year pe­ri­od. That is an av­er­age of US$1.294 bil­lion a year.

In ef­fect, the Cen­tral Bank is sell­ing for­eign ex­change that the Gov­ern­ment col­lects from en­er­gy com­pa­nies, most­ly up­stream sup­pli­ers, to meet the many and var­ied de­mands of the pop­u­la­tion for for­eign goods and ser­vices. That is akin to wealthy par­ents con­tin­u­ing to sup­ply their spranger child with mon­ey with which to buy co­caine or ke­t­a­mine.

In oth­er words, the Cen­tral Bank is sell­ing over US$1.2 bil­lion a year from what amounts to the Gov­ern­ment’s chequing ac­count at the Bank to meet the un­quench­able de­mands of the T&T pop­u­la­tion for for­eign ex­change.

Had the de­mand for for­eign ex­change not been as great, it is like­ly the Gov­ern­ment could move more funds from its chequing ac­count to its long-term sav­ings ac­counts. That would re­sult in T&T’s net for­eign re­serves ris­ing in­stead of falling.

And it is clear that over time, T&T’s for­eign re­serves will con­tin­ue to de­cline as the Cen­tral Bank con­tin­ues to de­plete the Gov­ern­ment’s ac­count with it to sat­is­fy the un­met for­eign ex­change de­mands.

Al­so, the coun­try’s for­eign re­serves will con­tin­ue to de­cline as T&T bor­rows hun­dreds of mil­lion of US dol­lars a year on the in­ter­na­tion­al cap­i­tal mar­kets, not to fund cap­i­tal ex­pen­di­ture or as­sets—such as roads, build­ings, a mod­ern cruise ship ter­mi­nal or im­prove­ments in land trans­porta­tion—but to re­plen­ish the coun­try’s for­eign re­serves to al­low the coun­try to con­tin­ue liv­ing be­yond its means.

That would be like the par­ents ref­er­enced above hav­ing to bor­row mon­ey to fund their child’s drug habit.

And it is clear that the for­eign re­serves will con­tin­ue to de­plete over time.

At the end of Sep­tem­ber 2015, the month that the now op­po­si­tion Peo­ple’s Na­tion­al Move­ment was elect­ed to gov­ern T&T, the coun­try’s net of­fi­cial for­eign re­serves stood at US$10.459 bil­lion. When that par­ty demit­ted of­fice in April 2025, the re­serves had de­clined to US$5.286 bil­lion. That is a de­ple­tion in our re­serves of US$5.173 bil­lion (49.45 per cent) in nine and a half years.

The cur­rent ad­min­is­tra­tion came in­to pow­er at the end of April 2015, when the re­serves stood at US$5.286 bil­lion. At the end of May this year, T&T’s net of­fi­cial for­eign re­serves stood at US$5.241 bil­lion, which is a de­cline of US$45 mil­lion.

While less than the av­er­age de­ple­tion over the pre­vi­ous nine and a half years, the struc­ture of the for­eign ex­change mar­ket re­mains ex­act­ly the same: The Gov­ern­ment de­pletes our for­eign re­serves by over US$1.2 bil­lion a year and then it, or a whol­ly owned state en­ter­prise, bor­rows US$1.2 bil­lion to main­tain the lev­el of the coun­try’s for­eign re­serves.

The dif­fer­ence with the cur­rent ad­min­is­tra­tion is that it is al­so ac­cess­ing the US-dol­lar sav­ings of whol­ly owned state en­ter­pris­es, such as the Na­tion­al Gas Com­pa­ny, which it has the le­gal right to do.

But that means the state en­ter­pris­es that are re­quired to trans­fer their US-dol­lar sav­ings to the Gov­ern­ment would have to de­lay their own cap­i­tal projects, ac­cess the in­ter­na­tion­al cap­i­tal mar­kets for new US-dol­lar loans or not be able to par­tic­i­pate in joint ven­tures with for­eign com­pa­nies. An ex­am­ple of this is NGC’s de­ci­sion not to par­tic­i­pate in the pipeline con­nect­ing the Drag­on gas field with Shell’s Hi­bis­cus nat­ur­al gas plat­form.

Jwala’s mus­ings

In a pre­sen­ta­tion in June 2014 at a T&T Cham­ber func­tion, for­mer Gov­er­nor of the Cen­tral Bank, Jwala Ram­bar­ran, not­ed that the sup­ply of for­eign ex­change was able to match de­mand for the pe­ri­od 1993 al­most in­to 1998. This is sig­nif­i­cant be­cause the flota­tion of the TT dol­lar took place in April 1993.

Af­ter 1998, Ram­bar­ran said, “We en­tered the pe­ri­od of rapid eco­nom­ic growth as­so­ci­at­ed with what we call the third en­er­gy boom. You would no­tice the rapid growth in de­mand for for­eign ex­change, and of course, a con­se­quent rapid in­crease in the sup­ply, but the gap be­tween de­mand and sup­ply start­ed widen­ing from then, and that gap con­tin­ued all the way up to the glob­al fi­nan­cial cri­sis that erupt­ed around 2008, and you would nat­u­ral­ly see then a sig­nif­i­cant and sharp fall off in the sup­ply of for­eign ex­change.”

Ram­bar­ran point­ed out that T&T was in a pe­ri­od of stag­na­tion for two or three years af­ter 2008, when “that gap was even wider than when we were ex­pe­ri­enc­ing the lev­el of rapid eco­nom­ic growth dur­ing the ear­ly 2000s.”

And, of course, the gap be­tween sup­ply of for­eign ex­change and the de­mand for it con­tin­ues up to to­day.

Is it a co­in­ci­dence that the on­ly pe­ri­od, in re­cent mem­o­ry, of sup­ply and de­mand for for­eign ex­change be­ing in bal­ance was dur­ing the pe­ri­od of flota­tion?