Amid concerns over a potentially reduced Christmas stock, the business community is welcoming a discussion with Minister of Finance Colm Imbert about the latest reduction in foreign exchange availability.
On Friday, Republic Bank informed customers that it would be reducing its US-dollar credit card limit from US$10,000 to US$5,000 effective September 21.
In a release addressing a newspaper editorial highlighting the impact of this reduction, Minister Imbert yesterday confirmed that he “will be holding discussions in the near future with the Central Bank, the commercial banks and the business community to discuss the causes and effect of increased demand for foreign exchange, and strategies to deal with the current challenges, and the most appropriate policy for the allocation, management and distribution of foreign currency, as well as strategies to increase the repatriation of forex earned overseas by local businesses and foreign business operating in T&T.”
He acknowledged that the amount of foreign exchange made available by the banks to the public for the eight-month period (January to August, 2023) was effectively the same as last year for the same period, but also noted that there had been an increase in demand.
“Going further to look at the amounts of foreign exchange sold to the public in 2021 and 2019, excluding the full COVID-19 year of 2020, one will see that in 2023, the sales of foreign exchange to the public for the first eight months of 2023 is 26.8 per cent higher than the same period in 2021 and 4.3 per cent higher than the same period in 2019,” Imbert said in the release.
“The issue, therefore, is not simply the availability of foreign exchange in 2023, compared to previous years, but rather, it also is the demand.”
Furthermore, Imbert suggested that the heightened demand had been created by internet shopping activity by the public.
“There has also been an explosion in online shopping over the last several years, which is driving up the usage of US dollar denominated credit cards, as consumers take advantage of the availability of cheaper goods overseas. There is also the question of imported inflation increasing the unit cost of imported items,” he said.
However, members of the business community yesterday questioned how the public could have drained the available forex, given that the credit limits had been in place for years.
Web Source CEO Lincoln Maharaj challenged the suggestion, noting that based on his own assessments, people were typically only shopping for necessities rather than luxury items since the pandemic.
“The limit puts the brakes on the demand. If there is an uptick in shopping online or anything like that, again, I know there is no uptick because in jobs, people have been displaced, companies have closed down since COVID and companies are not seeing post-pandemic profitability again, other than the banks, if you ask me,” Maharaj said.
Confederation of Regional Business Chambers chairman Vivek Charran said he welcomed Imbert’s decision to discuss forex supply and demand, but was unsure there had indeed been greater consumption by the public, even with reported increased travel overseas.
“One would expect that over the summer there will be more travel and more travel with some greater the use of forex. That being said, the use of forex was limited before. I don’t think it is the sector could say that the banks were able to supply them with all their needs for forex, even before this,” said Charran, who noted that several sectors have already struggled to import stock due to the limits previously in place.
“We are happy to listen to what he (Imbert) has to say. We in the business sector are very concerned about it. I think people are in a panic state. Before the situation arose, people, you know, had very large reserves, very large credit limits. Over a period of years, the bank kept cutting, so it was cut from $25,000 to $15,000 to $12,000 to $10,000 and now it is $5,000.”
Charran noted that the cut will affect small businesses who use credit cards to order stock ahead of the Christmas season.
“Is it going to affect how much people can import in the short-term from now until for Christmas?” said Charran, who noted that several small businesses look to the season to generate revenue to support their enterprise, “What is going to happen to them? Are they going to be able to continue to pay their rent, or their revenues for small businesses going to fall? So, I think we have a legitimate concern. It’s not about criticising the Government, is not about creating problems, right. Obviously, the announcement that the credit limits are cut by 50 per cent is one of great concern.”
He said members had heard murmurs that less US was being released to the banks and there had been some fallout in foreign exchange circulation due to declining returns in the energy sector.
The latter point was acknowledged by Imbert in his statement.
“In addition, the repatriation of foreign exchange earned through export earnings, which reached a high in 2022, is decreasing, as some businesses are choosing to keep their forex overseas, for various reasons,” Imbert said.