Econ­o­mist Dr Ronald Ramkissoon says while it is “nor­mal” that the coun­try ex­pe­ri­ences for­eign ex­change short­ages from time to time, it al­so re­flects that the de­mand for for­eign ex­change con­tin­ues to out­weigh the sup­ply of it.

“This is for ob­vi­ous rea­sons: Our ma­jor source of for­eign ex­change is the en­er­gy sec­tor–gas, crude oil and petro­chem­i­cals–and that sec­tor is the ma­jor gen­er­a­tor by far. So any time that sec­tor is not do­ing well ei­ther on the ba­sis of the price or quan­ti­ty, there’s a short­age of for­eign ex­change from that par­tic­u­lar source.

“De­mand for for­eign ex­change has re­cov­ered since 2020. Which was re­al­ly the COVID-19 ef­fect that caused some con­trac­tion in the econ­o­my for ob­vi­ous rea­sons.

“So, in 2022, 2023 we have had in­creas­ing de­mand, go­ing back to the kinds of lev­els that ob­tained be­fore COVID,” Ramkissoon, a for­mer se­nior econ­o­mist at Re­pub­lic Bank Ltd (RBL) ex­plained.

His com­ments came in wake of last Fri­day’s an­nounce­ment that T&T’s largest bank, RBL ad­vised its cus­tomers that it was cut­ting in half the max­i­mum US dol­lar spend­ing lim­it per billing cy­cle on cred­it cards is­sued by the bank.

In an email no­tice to its cus­tomers, which was re­pro­duced on its web­site, the bank ad­vised that the US-dol­lar cred­it card lim­it would be re­duced from US$10,000 to US$5,000 ef­fec­tive Sep­tem­ber 21, 2023.

The bank said the rea­son for the re­duc­tion in the US-dol­lar cred­it card lim­it, which is un­til fur­ther no­tice, was a re­sult of “the on­go­ing chal­lenges with for­eign ex­change avail­abil­i­ty.”

On March 23, 2021, Re­pub­lic re­duced the max­i­mum US dol­lar spend­ing lim­it per billing cy­cle on the bank’s cred­it cards from US$12,000 to US$10,000 ef­fec­tive. That re­duc­tion was al­so due to “the on­go­ing chal­lenges with for­eign ex­change avail­abil­i­ty.”

In its lat­est emailed no­tice, RBL said: “This change in­cludes all trans­ac­tions con­duct­ed out­side of T&T as well as all in­ter­na­tion­al on­line trans­ac­tions, in­clud­ing trans­ac­tions where the cho­sen billing cur­ren­cy is TT dol­lar.

“These on­line trans­ac­tions will be in­clud­ed in your US$5,000 billing cy­cle lim­it. All lo­cal TT-dol­lar trans­ac­tions con­duct­ed on­line or at mer­chants re­main un­af­fect­ed.”

Ac­cord­ing to Ramkissoon, be­cause T&T has a “qua­si-fixed rate” this would not al­low the TT/US ex­change rate, which now moves be­tween a sell­ing rate of $6.77 to $6.79 to US$1, to be ad­just­ed to re­flect stronger mar­ket de­mand.

“So whether it is gro­ceries, or any­thing else, in the case of a more flex­i­ble ex­change rate, the sell­ing price would go up and pre­sum­ably there would be less con­sump­tion...Gov­ern­ment has ex­plained why it has cho­sen this par­tic­u­lar kind of regime.

“What the cur­rent sit­u­a­tion means is you are go­ing to now have stronger pres­sures on the stock of for­eign ex­change. The bal­ance is not go­ing to be there in terms of de­mand and sup­ply be­cause the price is not be­ing al­lowed to ad­just. And there­fore, un­der the present ex­change rate regime, from time to time it is “nor­mal” and “nat­ur­al” that we would have these sit­u­a­tions,” Ramkissoon ex­plained.

Hence, in such an in­stance, all or­gan­i­sa­tions would have to ad­just.

“What we see the banks do­ing is, in fact, that their source of for­eign ex­change clear­ly is not ad­e­quate for the de­mand and there­fore, they have to cut back on the amount that they can sell to cus­tomers.”

Stat­ing that any time there is a “dis­e­qui­lib­ri­um” there will ob­vi­ous­ly be sit­u­a­tions where the “un­of­fi­cial rate” is go­ing to be high­er than what the of­fi­cial rate is, Ramkissoon added.

“Again, we have been through this be­fore. Those who do not earn for­eign ex­change are go­ing to be in the worse po­si­tion and many SMEs do not earn for­eign ex­change. As econ­o­mists we have al­ways ar­gued that we must bring this econ­o­my to a lev­el where more and more busi­ness­es earn for­eign ex­change, be­cause at the end of the day that is the on­ly so­lu­tion. We have to earn more for­eign ex­change whether small, medi­um or large busi­ness to be able to meet the de­mand,” he em­pha­sised.

Econ­o­mist Dr Vaalmik­ki Ar­joon who al­so shared his thoughts how­ev­er, ques­tioned why the need for the lim­it­ed ac­cess to forex at this time.

He not­ed that, ac­cord­ing to da­ta from the Cen­tral Bank, the in­sti­tu­tion has con­sis­tent­ly pro­vid­ed au­tho­rised deal­ers, pri­mar­i­ly com­mer­cial banks, with a month­ly in­jec­tion of US$100 mil­lion, ex­cept for June when they pro­vid­ed US$137.5 mil­lion.

He said the cu­mu­la­tive Cen­tral Bank in­jec­tion for the first eight months of the year reached US$837.5 mil­lion, adding that in ad­di­tion banks pur­chased a to­tal of $3.021 bil­lion from the pub­lic this year, re­sult­ing in to­tal pur­chas­es of US$3.858 bil­lion.

“How­ev­er, sales to the pub­lic amount­ed to US$4.205 bil­lion, cre­at­ing a deficit of US$346 mil­lion. No­tably how­ev­er, au­tho­rised deal­ers held an over­all sur­plus of forex, amount­ing to US$725.8 mil­lion from 2020 to 2022 (US$248.2 mil­lion in 2022, US$391.6 mil­lion in 2021 and US$86 mil­lion in 2020) – like­ly due to the pan­dem­ic in­duced slow­down in busi­ness ac­tiv­i­ties,” Ar­joon not­ed.

“This de­ci­sion comes at a time when pri­vate sec­tor ac­tiv­i­ties are slug­gish, and many mi­cro and small en­ter­pris­es (MSEs) heav­i­ly re­ly on their cred­it cards for trans­ac­tions, es­pe­cial­ly with for­eign sup­pli­ers. Un­like larg­er pri­vate sec­tor en­ti­ties, MSEs lack ac­cess to pre­vi­ous­ly hoard­ed US dol­lars and do not re­ceive pref­er­en­tial forex al­lo­ca­tions from bankers. Cred­it cards are es­sen­tial for their op­er­a­tions, and lim­it­ing their US al­lo­ca­tion ham­pers time­ly pay­ments and strains sup­pli­er re­la­tion­ships,” Ar­joon ex­plained.

Fur­ther­more, he added that in­ter­na­tion­al mar­ket prices re­main high, and many MSEs are yet to re­ceive VAT re­funds or bonds. They are al­so in­cur­ring sub­stan­tial du­ties and VAT ex­pens­es when im­port­ing. Ship­ping charges are al­so payable in US dol­lars. Re­strict­ing their US al­lo­ca­tion ex­ac­er­bates their fi­nan­cial dif­fi­cul­ties, per­pet­u­at­ing in­equal­i­ty with­in the lo­cal econ­o­my.

“These mea­sures con­tribute to the growth of the black mar­ket, in­creas­ing MSEs’ costs as black-mar­ket ex­change rates are sig­nif­i­cant­ly high­er. These added ex­pens­es may ul­ti­mate­ly be passed on to con­sumers, fur­ther con­strain­ing sales. This de­ci­sion has al­so cre­at­ed un­cer­tain­ty in the pri­vate sec­tor, mak­ing it chal­leng­ing for them to plan fu­ture in­vest­ments and growth strate­gies,” Ar­joon added.

He ad­vised that strik­ing a bal­ance be­tween forex con­trol and sup­port for lo­cal busi­ness­es is es­sen­tial dur­ing these chal­leng­ing times to pre­vent fur­ther eco­nom­ic strain and in­equal­i­ty.

“While our for­eign re­serves ap­pear healthy at US$6.258 bil­lion, it’s cru­cial to recog­nise that these lev­els are not sus­tained sole­ly by ex­port rev­enues and tax­es from en­er­gy com­pa­nies.

“A sig­nif­i­cant por­tion came from with­drawals of US$2.5 bil­lion from the HSF and in­creased ex­ter­nal bor­row­ing ex­ceed­ing US$2 bil­lion since Sep­tem­ber 2016. As we spend TT dol­lars lo­cal­ly, all forex ob­tained from HSF with­drawals and for­eign bor­row­ings must be con­vert­ed to TT dol­lars by the Cen­tral Bank. These con­vert­ed funds are then added to our forex re­serve ac­count. Con­se­quent­ly, our re­serves are ar­ti­fi­cial­ly in­flat­ed due to HSF with­drawals and for­eign bor­row­ings,” Ar­joon said.

He al­so not­ed that this sit­u­a­tion is fur­ther com­pound­ed by low­er forex earn­ings com­pared to pre­vi­ous en­er­gy boom pe­ri­ods, re­sult­ing in lim­it­ed ac­cess to forex from banks for many pri­vate sec­tor en­ti­ties and fos­ter­ing a thriv­ing black mar­ket.

Go­ing for­ward Ar­joon ad­vised that the chron­ic forex chal­lenges faced re­quire a mul­ti­fac­eted ap­proach in­clud­ing an ag­gres­sive ef­fort to in­crease pro­duc­tion and en­hance ex­port com­pet­i­tive­ness, and mea­sures to curb forex leak­ages.

“While re­cent surges in glob­al en­er­gy prices tem­porar­i­ly im­proved our cur­rent ac­count bal­ance to US$4.20 bil­lion be­tween Sep­tem­ber 2022 and March 2023, the volatile na­ture of en­er­gy prices and lack­lus­tre pro­duc­tion lev­els re­main a con­cern.

“To ad­dress this, we must not on­ly in­ten­si­fy up­stream hy­dro­car­bon pro­duc­tion, but al­so make sub­stan­tial in­vest­ments in re­new­ables, in­clud­ing green hy­dro­gen pro­duc­tion. As the de­mand for LNG will even­tu­al­ly be sup­plant­ed by re­new­ables, a for­ward-look­ing ap­proach is im­per­a­tive,” he fur­ther rec­om­mend­ed.