Raphael John-Lall

In an emer­gency, the Gov­ern­ment could ac­cess the for­eign cur­ren­cy de­posits held by state en­ter­pris­es, ac­cord­ing to econ­o­mist and lawyer, Dr Ter­rence Far­rell.

Ad­dress­ing a vir­tu­al sem­i­nar on the coun­try’s chal­lenges in ob­tain­ing forex at a vir­tu­al sem­i­nar last Fri­day night, Far­rell ar­gued that T&T has “three buck­ets” of for­eign ex­change sav­ings, not two.

The three are the of­fi­cial re­serves, which are cur­rent­ly US$6.3 bil­lion. Sec­ond­ly, the Her­itage and Sta­bil­i­sa­tion Fund (HSF) which has about US$5.5 bil­lion and third­ly the coun­try has the for­eign cur­ren­cy de­posits.

“There are the of­fi­cial re­serves which are about US$6.3 bil­lion but which have come down sig­nif­i­cant­ly over the last eight years. We have the HSF which is about US$5.5 bil­lion cur­rent­ly. I don’t want to say re­serves but we have some amount of for­eign cur­ren­cy de­posits which in an ex­treme sit­u­a­tion the Gov­ern­ment could po­ten­tial­ly ac­cess.”

He ex­plained that the Her­itage and Sta­bil­i­sa­tion Fund is not count­ed for nor­mal pur­pos­es as part of the coun­try’s for­eign ex­change re­serves.

“The of­fi­cial for­eign ex­change re­serves are held by the Cen­tral Bank and are re­flect­ing what is on the bal­ance sheet of the Cen­tral Bank of T&T. The HSF is a sep­a­rate fund. It is man­aged by a com­mit­tee which in­cludes folks from the Cen­tral Bank, but the HSF is not count­ed for nor­mal pur­pos­es as part of the coun­try’s for­eign re­serves.

“How­ev­er, I would point out that as far as the ex­ter­nal lenders to T&T are con­cerned, it does count, but they do take in­to con­sid­er­a­tion the HSF bal­ance in terms of as­sess­ing whether or not they would be lend­ing to T&T. Our ex­ter­nal bor­row­ing is sup­port­ed by the coun­try’s HSF which cur­rent­ly is in the re­gion of US$5.5 bil­lion. For­eign ex­change re­serves at the end of De­cem­ber 2023 were around US$6.3 bil­lion.”

Far­rell al­so said T&T’s of­fi­cial for­eign ex­change re­serves have been in “steady de­cline” over the years.

“Tak­ing you back to 2008 and 2009, com­pared to where we are to­day, in De­cem­ber 2023, you would see that we are in fact in a po­si­tion in terms of the quan­tum of for­eign ex­change re­serves, there’s been a steady de­cline in the for­eign ex­change re­serves since De­cem­ber 2014, when we kind of peaked. But the fig­ures that we have to­day are even low­er than what we had to­wards the pe­ri­od 2005 com­ing to 2010. What we have is a de­cline in the for­eign ex­change re­serves which is en­cap­su­lat­ing the fact that the coun­try has been run­ning es­sen­tial­ly per­sis­tent bal­ance of pay­ments deficits over that pe­ri­od of time.”

He al­so said there is an­oth­er “sum of mon­ey” re­ferred to as the for­eign cur­ren­cy de­posits in the lo­cal bank­ing sys­tem.

He said these are al­so not part of the of­fi­cial re­serves.

“That num­ber has risen fair­ly steadi­ly since we lib­er­alised in 1993. That num­ber now stands at US$4 bil­lion. What are those for­eign cur­ren­cy de­posits in the com­mer­cial banks? They are de­posits of T&T com­pa­nies and in­di­vid­u­als. Some of those com­pa­nies that hold those de­posits, which now to­tal about US$4 bil­lion, are in fact state en­ter­pris­es or statu­to­ry boards. I am guess­ing that as the Cen­tral Bank does not tell you who owns the for­eign cur­ren­cy de­posits but based on in­for­ma­tion one can glean oth­er­wise. I sus­pect that a sig­nif­i­cant part of that US$4 bil­lion of for­eign cur­ren­cy de­posits are in fact held by state en­ti­ties.”

Al­though these are not part of the of­fi­cial re­serves, he said they can still be drawn up­on in the case of an emer­gency.

“If that is the case then al­though those sums are not part of the coun­try’s of­fi­cial for­eign ex­change re­serves if you do have a cri­sis like the In­ter­na­tion­al Mon­e­tary Fund (IMF) pro­grammes in the 1980s, we did ac­cess for­eign ex­change hold­ings from state en­ter­pris­es and we would put them in­to the Cen­tral Bank to make sure we passed the IMF test. The point is that in an ex­treme sit­u­a­tion, the Gov­ern­ment would prob­a­bly be able to put their hands on those for­eign cur­ren­cy de­posits which are owned by statu­to­ry bod­ies or state en­ter­pris­es.”

Dif­fi­cult to di­ver­si­fy

Far­rell ex­plained that T&T’s hard cur­ren­cy comes from the en­er­gy sec­tor and there has been a de­cline in the mon­ey that is de­rived from the sell­ing of gas.

He said nat­ur­al gas pro­duc­tion has been falling and has neg­a­tive­ly im­pact­ed Gov­ern­ment’s rev­enue, which has led to fis­cal deficits.

“This does not come so much from oil and Her­itage does gen­er­ate some earn some for­eign ex­change but it comes from some up­stream pro­duc­ers. It comes from the BHP’s, it comes from Shell. They ex­port the gas, they pro­vide the tax rev­enues to the Gov­ern­ment through the Cen­tral Bank. Our nat­ur­al gas and crude oil pro­duc­tion has been falling. It has been falling fair­ly con­sis­tent­ly. We moved from be­ing a four Bil­lion Cu­bic Feet (BCF) per day econ­o­my to an econ­o­my where we are now 2.7 BCF a day econ­o­my. That’s the ex­tent of where we are.”

He said the way the econ­o­my has been built is that it does not pro­vides in­cen­tives to di­ver­si­fy away from en­er­gy to oth­er pro­duc­tive sec­tors.

“So, wages tend to rise in both nom­i­nal and in re­al terms. This dis­in­cen­tivizes the pro­duc­tion of trad­ables, that is the pro­duc­tion of ex­ports out­side of the en­er­gy sec­tor or the pro­duc­tion of im­port-sub­sti­tutes. They be­come less com­pet­i­tive. The pro­por­tion of trad­ables to non-trad­ables is grow­ing in the econ­o­my and the econ­o­my is be­com­ing less com­pet­i­tive. We have an econ­o­my which the in­cen­tive struc­ture of the econ­o­my is such that it works against the di­ver­si­fi­ca­tion of the econ­o­my. It works to­wards the in­crease pro­duc­tion of non-trad­able goods and ser­vices. It works to­wards more rent seek­ing be­hav­iour.”

He does not ex­pect the eco­nom­ic sit­u­a­tion to im­prove in the im­me­di­ate fu­ture.

“We are go­ing to be con­tin­ued to be chal­lenged in re­spect of nat­ur­al gas pro­duc­tion and if we as­sume that prices are go­ing to be more or less where they are now, then that has im­pli­ca­tions for Gov­ern­ment rev­enue. More than like­ly they will go back in­to deficits and in re­spect of for­eign ex­change avail­abil­i­ty, it looks that we are go­ing to see the for­eign ex­change re­serves de­cline slow­ly.”

SME’s af­fect­ed

Econ­o­mist Dr Re­bec­ca Gookool-Bosland who al­so spoke dur­ing the we­bi­nar re­ferred to “ne­ces­si­ty en­tre­pre­neurs” who be­long pre­dom­i­nant­ly to the ser­vices sec­tor and rep­re­sent small shops and stores. She said these are some of the sec­tors most im­pact­ed by the short­age of for­eign ex­change.

She al­so spoke about oth­er neg­a­tive fac­tors that are con­tribut­ing to a wors­en­ing econ­o­my like un­der­em­ploy­ment, crime and vi­o­lence, a re­duc­tion in the ease of do­ing busi­ness and weak­ened eco­nom­ic link­ages be­tween sec­tors.

“The truth is the av­er­age man on the street is feel­ing the de­cline. He may not know bow to in­ter­pret num­bers like this, but it is show­ing up in less­er sales. The av­er­age dou­bles man is sell­ing less. He is faced with the threat of some­one com­ing to rob him. The nar­ra­tive that is be­ing tout­ed is that things are get­ting bet­ter. The truth is the num­bers show oth­er­wise.”

The vir­tu­al sem­i­nar was host­ed by the De­part­ment of Trade and Eco­nom­ics of the Uni­ver­si­ty of the West In­dies (UWI), St. Au­gus­tine.