The foreign exchange reserves of Trinidad and Tobago continues to worsen as revenue decline from the energy sector.
T&T foreign exchange reserves
The Central Bank of Trinidad and Tobago (CBTT) has warned of a “further slippage” of the foreign exchange situation in that country, noting the country will need to maintain its monetary policy dynamism to deal with the current as well as future domestic and external financial challenges.
Calls to devalue dollar
There have been calls from the private sector, economists and financial experts for Trinidad and Tobago to devalue the local currency because of the tight foreign exchange situation, and the drastic decline in revenue from the energy sector. These factors has resulted in tight economic problems for the oil-rich twin island republic.
But, CBTT Governor Dr. Alvin Hilaire told a news conference that the country had enough foreign exchange to cover at least nine months of imports.
Hilaire said the financial institution is joining other central banks across the globe “in pursuing a monetary policy appropriate to country-specific circumstances, while advocating for closer coordination with other macroeconomic policies…and avoiding excessive money creation.”
Shock therapy and gradualism
He told reporters that determining the pace of adjustment to a large terms of trade shock as Trinidad and Tobago is facing “is not a simple choice between shock therapy and gradualism.
Hilaire told reporters that monetary action in Trinidad and Tobago had to respond to the economy’s energy-exporting nature and associated growth and inflation cycles.
He said apart from direct local spending by energy companies, the main channel through which the energy sector affects the local economy is through government taxes.
“This has interesting implications for monetary policy since even in the absence of an overall deficit, government spending in excess of what it receives from domestic taxes could add to inflationary pressures.
Close attention to government spending
“The Central Bank therefore has to pay close attention to the financial activities of the government to avoid the possibility of overheating the economy. This is further complicated by the fact that international energy prices are unpredictable, and the economy has been subject to the boom-bust cycles over the last half century associated with external price movements.”
The Central Bank Governor said that for the most part, spikes in the energy prices from 1973 to 1982 and 1995 to 2013, “have been accompanied by episodes of relatively high growth in Trinidad and Tobago and moderate to high inflation.”
