(Trinidad Guardian) The International Monetary Fund (IMF) said on Friday that T&T’s foreign exchange restrictions are not consistent with the Fund’s Articles of Agreement.
And the Washington DC-based lender of last resort is seeking to persuade this country to end the restrictions.
The comment from the IMF, which was exclusive to Guardian Media, follows a period of heightened concern about foreign exchange supply constraints in T&T.
In its comment, the IMF spokesperson noted that Under Article VIII, Section 2(a) of the Fund’s Articles of Agreement, no member of the Fund shall, without the approval of the Fund, impose restrictions on the making of payments and transfers for current international transactions (ie, exchange restrictions).
The IMF noted T&T’s exchange restrictions are identified and assessed in Article IV Consultation Staff Reports.
As detailed in T&T’s 2024 Article IV Consultation staff report, T&T maintains an exchange restriction that was not approved by the Fund, according to informational annex of the report.
“While such exchange restrictions are inconsistent with the Fund’s Articles, the Fund has followed a cooperative approach, encouraging members to eliminate these measures, including through surveillance and technical assistance,” said the IMF spokesperson.
“In T&T’s 2024 Article IV Consultation staff report, it was noted that ‘addressing foreign exchange shortages remains a priority,” and “the removal of all restrictions on current international transactions and greater exchange rate flexibility over the medium term would help to meet the demand for foreign exchange’.
“The Fund looks forward to discussing this and other economic and financial policies with the authorities in the next Article IV Consultation.”
Speaking at a news conference on Tuesday, Minister of Finance Colm Imbert said the Government, through the Central Bank, the Eximbank of T&T and a special window for state enterprises, injected a little more than US$2 billion into the market in 2023.
“We have been averaging around US$1.8 billion, US$1.9 billion, sometimes US$2 billion and we went to US$2.4 billion quite recently. That does deplete the reserves, of course. But we have been facing this situation since we came in 2015, and we have managed the process where we have not run out of foreign exchange,” said Imbert.
“Of course, the injection of foreign exchange, through the Central Bank and through the Eximbank, ecetera, draws down our reserves, but we have come up with many different and innovative ways of replenishing those reserves. This is why we still have almost US$6 billion in reserves after nine years and especially after COVID, where we had to use quite a bit of foreign exchange,” he said.
According to the data centre of the Central Bank, T&T’s net official foreign reserves for September 2024, amounted to $5.664 billion. T&T’s net official foreign reserves declined by 45.84 per cent between the end of September 2015, when the reserves position was US$10.539 billion, and September 2024. The current administration was elected on September 7, 2015
Explaining how T&T foreign reserves are generated, Imbert said when taxes are paid by the companies in the energy sector, it goes into a special account at the Central Bank.
“T&T also gets US dollars when we borrow from international agencies and banks. That goes into the foreign reserves account,” said Imbert, adding that the Central Bank sells foreign exchange to the country’s commercial banks every two to three weeks, based on a formula that has been in place for ten years.
The Central Bank formula is based factors including the size of the bank and the number of branches and customers they have.
The Bank also indicates the exchange rate at which the commercial banks can sell to their customers. The commercial banks are informed that preference must be given to customers who trade.
In its Annual Economic Survey for 2023, the Central Bank disclosed that the demand for foreign exchange—measured by sales of foreign exchange by authorised dealers to the public—totalled US$6.228 billion. Supply of foreign exchange—measured by purchases of foreign exchange from the public by authorised dealers—amounted to US$4.614 billion.
That left a net sales gap of US$1.614 billion, of which the Central Bank supplied US$1.342 billion to authorised dealers to support the market.
On October 30, Scotiabank informed its customers that the US-dollar spending limit per calendar month on its Aero Mastercard black would be reduced to US$5,000 and all of its other personal credit cards would be limited to US$2,000 spending per month. This change, said Scotiabank, includes all transactions conducted outside of T&T along with all international online transactions, and becomes effective on December 1.
In the last two weeks, Scotiabank T&T and RBC T&T reduced the US-dollar spending limit on their credit cards.
On Friday, RBC T&T said it was cutting the foreign exchange limits on its credit cards from $41,000 (US$6,038) to $14,000 (US$2,061). Those reductions come into effect on December 1.
Those decisions followed Republic Bank’s announcement in September 2023 that it was cutting its limit.
“Directors stressed that addressing foreign exchange shortages remains a priority and encouraged adopting a more efficient and market-clearing infrastructure for allocating FX. They noted that removing all restrictions on current international transactions and greater exchange rate flexibility over the medium term would help meet the demand for foreign exchange.”
“A more efficient foreign exchange infrastructure and greater exchange rate flexibility over the medium term would help address FX shortfalls and improve the business environment.”
“With positive US-TT interest rate differentials, resident holdings of US Treasuries have increased by about US$1.3 billion between mid-2022 and end-2023.”
