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TTO | Jun 10, 2024

IMF urges T&T to resolve its forex shortages

/ Our Today

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The Central Bank of Trinidad and Tobago.

The International Monetary Fund (IMF) is urging the Government of Trinidad and Tobago (T&T) to resolve its foreign exchange (FX) shortages, emphasising that this must be a top priority for the twin-island republic.

In its latest Article IV, which was concluded on May 8, IMF directors issued a call to action regarding the ongoing foreign exchange challenges, insisting that an improvement in the way foreign currency is distributed and exchanged in the market in a necessity. They contend 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.

“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 Article IV consultation document stated.

FILE PHOTO: A man walks past the International Monetary Fund (IMF) logo at its headquarters in Washington, U.S., May 10, 2018. REUTERS/Yuri Gripas/File Photo

FX shortages remains a priority 

Directors stressed that addressing the FX shortages remains a priority and encouraged adopting a more efficient and market-clearing infrastructure for allocating FX. They advocated for removing all restrictions on current international transactions and greater exchange rate flexibility over the medium term, arguing this would help meet the demand for FX

Following the conclusion of the Article IV consultation, the IMF noted that for the first time in a decade, T&T is experiencing a gradual and sustained economic recovery. Real gross domestic product (GDP) is estimated to have further expanded by 2.1 per cent 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. 

US fifty dollar banknotes are pictured in this photo illustration.
(Photo: Dinendra Haria/SOPA Images/Sipa USA via REUTERS)

The IMF 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. 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.”

The 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. They also highlighted that strengthening the medium-term fiscal position would help rebuild fiscal buffers and maintain public debt well below the authorities’ soft debt target.

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

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