The Ministry of Finance and the Central Bank have been told by the International Monetary Fund (IMF) to remove all restrictions on current international transactions.
This, they say, would be a means of creating a more investment-friendly business environment that would drive the diversification of the T&T economy.
The IMF’s encouragement came in its concluding statement following the international financial institution’s Article IV consultations with T&T authorities (Ministry of Finance and the Central Bank). Those consultations lasted from March 1-14.
In the report, the IMF said a more efficient foreign exchange infrastructure would help eliminate foreign exchange shortfalls.
“It would also help create a more conducive business environment for the private sector to invest and diversify the economy. Over the medium term, greater exchange rate flexibility would reduce the need for fiscal policy adjustments to restore external balance and create room for more counter-cyclical monetary policy (which would stimulate a slowing economy and slow an expanding one),” IMF staff said.
“IMF staff encourages the authorities to remove all restrictions on current international transactions, while providing sufficient foreign exchange to meet demand for all current international transactions.”
Among the current restrictions of T&T’s foreign exchange regime include the limitation in the movement of T&T’s main exchange rate, the US to TT, to a narrow band in which the selling rate is not allowed to go beyond the ceiling of US$1 to TT$6.7997.
The authorities also limit the amount of foreign exchange that is sold to the authorised dealers. That has led local commercial banks, who are among T&T’s authorised foreign exchange dealers, to restrict the amount of foreign exchange they are able to sell to customers, both companies and individuals.
This has resulted in a very active black-market trade in US dollars and long delays in the completion of payments for imports and foreign services.
The IMF team also recommended that the Central Bank should increase its repo rate from 3.5 per cent, which it has maintained since March 2020, as a means of heading off inflationary pressure and mitigating capital flight.
The IMF team said: “Increasing the policy rate should be seriously considered to contain inflationary pressures and narrow the negative interest rate differentials with the US monetary policy rate. This would also help mitigate potential risks of capital outflows and reduce incentives for excessive risk-taking that could threaten financial stability.”