IMF calls on T&T to improve way forex is distributed and exchanged

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IMF calls on T&T to improve way forex is distributed and exchanged

The International Monetary Fund has issued a call to action regarding Trinidad and Tobago’s ongoing foreign exchange challenges, emphasising that resolving these shortages must be a top priority for this country.

The IMF’s executive directors are calling for an improvement in the way foreign currency is distributed and exchanged in the market.

They stated that this can be achieved by removing all restrictions on current international transactions and introducing greater exchange rate flexibility over the medium term to help meet the demand for foreign exchange.

These suggestions were part of the IMF’s executive directors’ assessment of the Article IV consultation with Trinidad and Tobago, which concluded on May 8.

“Directors underscored the importance of maintaining sound and consistent macroeconomic policies to support the current exchange rate arrangement. They encouraged the authorities to remain vigilant and stand ready to increase the monetary policy rate should potential capital outflow risks intensify,” the document stated.

“Directors stressed that addressing foreign exchange (FX) 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 FX,” it stated.

Following the conclusion of the Article IV consultation, the IMF noted that, for the first time in a decade, Trinidad and Tobago is experiencing a gradual and sustained economic recovery.

“Real Gross Domestic Product (GDP) is estimated to have further expanded by 2.1% in 2023, reflecting a strong performance of the non-energy sector. Inflation has declined sharply, mainly due to decelerating global food and imported goods prices. Banks’ credit to the private sector continues to expand and the financial sector appears sound and stable,” it stated.

It also stated that economic growth is projected to gain momentum in 2024, supported by both the non-energy and energy sectors, with inflation expected to remain low.

T&T’s real GDP will grow by 2.4% this year, the IMF projected.

The IMF’s executive directors agreed with the thrust of the staff appraisal, and welcomed Trinidad and Tobago’s “sustained economic recovery, sharp decline in inflation in 2023, and strong external position.”

“Directors considered that, while the outlook is favourable, the balance of risks is tilted to the downside in the near-term and to the upside in the medium term. Going forward, they emphasised the need for reforms to strengthen the economic recovery, rebuild buffers, and secure a more diversified, green, resilient, and inclusive economy,” the statement read.

“Directors highlighted that strengthening the medium-term fiscal position would help rebuild fiscal buffers and maintain public debt well below the authorities’ soft debt target,” it continued.

They agreed that developing a rules-based fiscal framework and a sound debt management strategy would help strengthen fiscal management and mitigate macro-financial risks.

“Directors underscored the need to address fiscal risks from the pension system and energy transition and commended the proclaimed Procurement Act, which should help improve the efficiency of public spending. Directors also emphasised the importance of continued efforts to mobilise revenue, particularly from the non-energy sector,” it stated.

The IMF’s executive directors noted the financial system’s resilience while also emphasising vigilance against potential vulnerabilities.

“They welcomed the progress achieved and encouraged further efforts toward implementing the 2020 FSAP (Financial Sector Assessment Programme) recommendations. Directors commended the authorities’ progress in strengthening the financial integrity and international tax transparency frameworks and encouraged them to continue strengthening the domestic tax administration and AML/CFT (Anti-Money Laundering and Combating the Financing of Terrorism) frameworks in line with international best practices. Enhancing fintech, promoting financial inclusion, and strengthening the regulatory and supervisory guidance of e-money and cybersecurity will also be key,” it stated.

The IMF executive directors also welcomed the authorities’ commitment to diversifying the economy, attracting investment, promoting private sector engagement, and increasing trade integration.

“They encouraged the authorities to further enhance the business environment, tackle insecurity, and strengthen the efficiency of trade logistics. Directors commended the authorities’ actions to advance their climate and energy transition agenda and emphasised the importance of building climate resilient infrastructure,” it stated.

“Directors welcomed the authorities’ efforts to improve the quality, timeliness, and coverage of macroeconomic statistics, which should be sustained,” it stated.