By Sue-Ann Wayow
AN immediate sizable ad hoc injection of foreign exchange is needed in the financial system.
Chief Executive Officer of the American Chamber of Commerce of Trinidad and Tobago (AMCHAM) T&T Nirad Tewarie said this in a statement on Monday.
He said while the announcement by Finance Minister Colm Imbert to meet with Central Bank and other stakeholders to discuss the forex shortage was welcomed, it will be difficult and measures needed to be fast tracked.
Tewarie said, “It is past time that the Government seriously and collaboratively set medium term targets and implement the relevant policy measures to address the chronic foreign exchange shortage in T&T. Our economy is, after all, the largest in the English-speaking Caribbean. It also has the largest financial sector.
“We cannot continue in this manner. The status quo is crippling business and setting the conditions for an extremely difficult economic period that would, as usually happens, have the greatest impact on the most vulnerable through potentially high inflation.”
According to Tewarie, the recent acute shortage was directly linked to the reduced amount of foreign exchange being sold to authorised foreign exchange dealers mainly banks by the upstream energy and petroleum companies in recent months.
The companies were able to access Government issued Value Added Tax (VAT) bonds, for large, outstanding amounts of VAT owed to them over several years. They cashed those TT bonds at the banks and now have enough local currency to pay local expenses.
Tewarie said selling US dollars back to the local market was unattractive to many.
He said, “Most of our foreign exchange is earned through energy companies who pay taxes in US dollars and who sell US dollars to the local banks to acquire TT dollars to pay wages, rent and other local bills. When the taxes are paid to the government, the Central Bank sells some of this back to the authorised foreign exchange dealers in line with Government policy.
“Therefore, the Government determines how much is sold back to the market, usually on a quarterly basis. There have been several instances in which ad hoc sales have been requested, of the Central Bank, by the Government to ease acute shortages.”
Tewarie said Government has to consider amongst other things the quantum of desired reserves because those sales to the market in a period during which the total inflow of US dollars was less than the total demand, means that if the Government were to attempt to meet demand without the likelihood of an increase in the inflows of foreign exchange, they would have to draw from reserves.
He mentioned the settling of VAT liabilities was a positive move by the government but had a domino effect.
“The current acute shortage of foreign exchange is directly related to the issuance of the VAT bonds, which is the result of not settling VAT refunds in a timely manner in the first place,” Tewarie said.
Apart from the injection of foreign exchange into the system, the Ministry of Finance should work with the Board of Inland Revenue to ensure that going forward, VAT refunds were settled expeditiously in the manner for which the system was designed, he added since many energy companies still have about 50% of their VAT refunds to be settled.
Acknowledging that the private sector needed to earn more foreign exchange, Tewarie said it would be irrational for those who do earn more foreign exchange to bring it back to the local system “in a scenario in which both the returns that are likely to be earned on that capital are low and there is a possibility that when that foreign exchange is needed it may be inaccessible, if even for a period of time.”
