TRINIDAD and Tobago has been experiencing significant foreign exchange (FX) challenges over the past several years.
Trinidad and Tobago always had a stable influx of foreign currency mainly due to its energy exports, however, we now have a shortage that has massive implications for citizens, businesses, and our economy. What Is the real reason for us experiencing foreign exchange flight and the reasons behind the shortage?
Foreign exchange flight is where there is a great amount of outflow of foreign currency from a country, that is causing a depletion of the foreign reserves. This phenomenon can be triggered by various factors, such as investors unwilling to invest due to confidence in the government and economy, where investors see better opportunities in other markets, where only a certain sector of businesses get allocations from the banks and where businesses and citizens are hoarding foreign currency. In Trinidad and Tobago, we have several factors contributing to this outflow.
Reduced Energy Revenues is a major one. Trinidad and Tobago’s economy is very dependent on oil and gas exports, which have been the major source of foreign exchange. Our reduced production levels is a major factor that has caused the drop in revenue. As a result, we can’t get an adequate influx of foreign currency and this is one of the major problems, while outflows is more prominent that the inflow.
Recently, over the last couple of years, there has been more and more capital flight, as local businesses and local citizens move out their savings and money to foreign banks and investments. This is because they are scared of what they are seeing in the economy here and because of the economic instability.
They believe the US currency is artificially maintained at a certain price and our money has really depreciated, and therefore their confidence in the local financial system has dwindled. This uncertainty that surrounds the economic outlook is major issue for us and triggers capital flight together with the perception of getting better returns in other countries.
Our demand and high dependency on imported goods, machinery, and raw materials are all driving factors too. The demand on imported goods is why we require so much foreign exchange. When businesses and our citizens buy more foreign goods from abroad, it increases our requirement for foreign currency and this can cause a depletion of foreign reserves especially as we do not have adequate inflows. You know how we Trinis like foreign things.
Like I said before, there is always a looming concern that the Trinidad and Tobago dollar (TTD) may depreciate more and this can cause speculation, where businesses and people hoard foreign currency. This speculation means people will hold on to their US dollar and it increases the demand for it. This causes a booming black market for the US dollar by decreasing the availability of foreign currency in the banking system.
We have always relied heavily on the energy sector and this has caused our problem as the decline in our production, the shut down of a major refinery like Petrotrin and with the global volatility of oil and gas prices, Trinidad and Tobago’s foreign exchange earnings capacity has now declined considerably under this government.
The Rowley-led government has failed to diversify the economy which means other sectors like agriculture and manufacturing are undeveloped and under funded and therefore unable to generate significant foreign exchange earnings. The Central Bank of Trinidad and Tobago has maintained an artificial exchange rate between the USD and the TTD. This has created imbalances between the supply and demand for foreign exchange. This has made it difficult for businesses and citizens to access the foreign exchange they need and has really hurt us.
We have essentially created a Black Currency Market. The shortage of foreign exchange from our normal channels has led to the growth of a black market, where USD is sold at higher rates than the official exchange rate. It ranges from $7.50 to over $8 to get USD. This has created a real problem in the our economy, with businesses and citizens grabbling with acquiring USD and paying premium prices for foreign currency.
This has impacted citizens traveling abroad, and citizens that have to pay school fees in Forex. The foreign exchange shortage makes it almost impossible to access the necessary funds leading to many turning to the black market or ingenuous ways of using their credit cards from various banks. We can’t get Forex to do business, to pay for education, or to take a simple holiday and this inability to obtain foreign currency at a decent rate has decreased our business opportunities and increase the cost of travel for us all.
As citizens of Trinidad and Tobago’s we can’t continue like this where we are unable to access foreign exchange and these challenges are a complex issue of mismanagement of our domestic economic policies, and the global market. It has exposed the weaknesses in the economy.
The mismanagement by the Rowley-led government has put us in this situation. They have failed to implement economic diversification, the have failed to put in place any proper fiscal management and policies that can boost investor‘s confidence.
They have not addressed the problems in the past nine years, so although we speak of the problems we will continue to hide our heads in the sand, while our country continues to face foreign exchange shortages that has ripple effects for our businesses and citizens. This is a hard pill to swallow.
Neill Gosine is an insurance executive. He is sometimes a temporary Opposition Senator, an ex-treasurer of the UNC and a former chairman of the National Petroleum Marketing Company of Trinidad and Tobago (NP). He holds a Doctorate in Business Administration, a Master’s in Business Administration MBA, BSC in Mathematics and a BA in Administrative Studies. The views and comments expressed in this column are not necessarily those of AZP News, a Division of Complete Image Limited
Commentary: Creating a Currency Black Market
TRINIDAD and Tobago has been experiencing significant foreign exchange (FX) challenges over the past several years.
Trinidad and Tobago always had a stable influx of foreign currency mainly due to its energy exports, however, we now have a shortage that has massive implications for citizens, businesses, and our economy. What Is the real reason for us experiencing foreign exchange flight and the reasons behind the shortage?
Foreign exchange flight is where there is a great amount of outflow of foreign currency from a country, that is causing a depletion of the foreign reserves. This phenomenon can be triggered by various factors, such as investors unwilling to invest due to confidence in the government and economy, where investors see better opportunities in other markets, where only a certain sector of businesses get allocations from the banks and where businesses and citizens are hoarding foreign currency. In Trinidad and Tobago, we have several factors contributing to this outflow.
Reduced Energy Revenues is a major one. Trinidad and Tobago’s economy is very dependent on oil and gas exports, which have been the major source of foreign exchange. Our reduced production levels is a major factor that has caused the drop in revenue. As a result, we can’t get an adequate influx of foreign currency and this is one of the major problems, while outflows is more prominent that the inflow.
Recently, over the last couple of years, there has been more and more capital flight, as local businesses and local citizens move out their savings and money to foreign banks and investments. This is because they are scared of what they are seeing in the economy here and because of the economic instability.
They believe the US currency is artificially maintained at a certain price and our money has really depreciated, and therefore their confidence in the local financial system has dwindled. This uncertainty that surrounds the economic outlook is major issue for us and triggers capital flight together with the perception of getting better returns in other countries.
Our demand and high dependency on imported goods, machinery, and raw materials are all driving factors too. The demand on imported goods is why we require so much foreign exchange. When businesses and our citizens buy more foreign goods from abroad, it increases our requirement for foreign currency and this can cause a depletion of foreign reserves especially as we do not have adequate inflows. You know how we Trinis like foreign things.
Like I said before, there is always a looming concern that the Trinidad and Tobago dollar (TTD) may depreciate more and this can cause speculation, where businesses and people hoard foreign currency. This speculation means people will hold on to their US dollar and it increases the demand for it. This causes a booming black market for the US dollar by decreasing the availability of foreign currency in the banking system.
We have always relied heavily on the energy sector and this has caused our problem as the decline in our production, the shut down of a major refinery like Petrotrin and with the global volatility of oil and gas prices, Trinidad and Tobago’s foreign exchange earnings capacity has now declined considerably under this government.
The Rowley-led government has failed to diversify the economy which means other sectors like agriculture and manufacturing are undeveloped and under funded and therefore unable to generate significant foreign exchange earnings. The Central Bank of Trinidad and Tobago has maintained an artificial exchange rate between the USD and the TTD. This has created imbalances between the supply and demand for foreign exchange. This has made it difficult for businesses and citizens to access the foreign exchange they need and has really hurt us.
We have essentially created a Black Currency Market. The shortage of foreign exchange from our normal channels has led to the growth of a black market, where USD is sold at higher rates than the official exchange rate. It ranges from $7.50 to over $8 to get USD. This has created a real problem in the our economy, with businesses and citizens grabbling with acquiring USD and paying premium prices for foreign currency.
This has impacted citizens traveling abroad, and citizens that have to pay school fees in Forex. The foreign exchange shortage makes it almost impossible to access the necessary funds leading to many turning to the black market or ingenuous ways of using their credit cards from various banks. We can’t get Forex to do business, to pay for education, or to take a simple holiday and this inability to obtain foreign currency at a decent rate has decreased our business opportunities and increase the cost of travel for us all.
As citizens of Trinidad and Tobago’s we can’t continue like this where we are unable to access foreign exchange and these challenges are a complex issue of mismanagement of our domestic economic policies, and the global market. It has exposed the weaknesses in the economy.
The mismanagement by the Rowley-led government has put us in this situation. They have failed to implement economic diversification, the have failed to put in place any proper fiscal management and policies that can boost investor‘s confidence.
They have not addressed the problems in the past nine years, so although we speak of the problems we will continue to hide our heads in the sand, while our country continues to face foreign exchange shortages that has ripple effects for our businesses and citizens. This is a hard pill to swallow.
Neill Gosine is an insurance executive. He is sometimes a temporary Opposition Senator, an ex-treasurer of the UNC and a former chairman of the National Petroleum Marketing Company of Trinidad and Tobago (NP). He holds a Doctorate in Business Administration, a Master’s in Business Administration MBA, BSC in Mathematics and a BA in Administrative Studies. The views and comments expressed in this column are not necessarily those of AZP News, a Division of Complete Image Limited