Remove foreign exchange restrictions | Local News
The International Monetary Fund (IMF) yesterday called on the government to remove restrictions on the availability of foreign currency for current international transactions, even as the Washington DC-based institution predicted a strong recovery in the domestic economy in 2022 .
The IMF’s comments were included in the final statement of its 2021 Article IV consultation with Trinidad and Tobago, the first such assessment since August 2018. The Article IV consultation is generally a Annual, in-depth discussion between IMF staff and member country representatives.
Under Modernizing Monetary Policy and Exchange Rates, IMF members said: âThe mission stressed the need for an appropriate policy mix to support the exchange rate regime and called for the removal of the exchange rate regime. restrictions on ongoing international transactions.
âThe authorities are encouraged to modernize foreign exchange and money market infrastructure in order to reduce inefficiencies and imbalances in order to support the sustainability of existing arrangements.
âGoing forward, greater exchange rate flexibility would reduce the need for fiscal policy adjustments to restore external balance and create room for maneuver for a more counter-cyclical monetary policy. “
Countercyclical monetary policy includes cutting interest rates and increasing the money supply, as the Central Bank did on March 17, 2020 when it cut its key rate, the repo rate, 1.50%, while reducing its required reserves to 14%. by 17 percent.
Staff added that the mission “encouraged the authorities to remove all restrictions on current international transactions while providing sufficient foreign exchange to meet the demand for all current international transactions.”
Regarding the definition of current international transactions, the IMF document entitled Annual Report on Foreign Exchange Agreements and Foreign Exchange Restrictions 2020 makes it clear that these transactions go beyond the availability of foreign exchange for commercial purposes.
âThe CBTT also limits the sales of its foreign exchange intervention funds to the satisfaction of only ‘trade-related’ demand, which does not include non-commercial transactions which are, however, current international transactions as defined in the Article XXX (d) of the IMF Articles of Agreement. of the Agreement and encourages Authorized Resellers to similarly prioritize sales of foreign currency obtained from other sources. “
The Central Bank and the Ministry of Finance have maintained restrictions on the availability of foreign exchange for non-commercial purposes since 2014. The Central Bank sets the rates at which foreign exchange is bought and sold “while not providing enough foreign currency (ie. that is, through the CBTT’s foreign exchange interventions) to meet all requests for current transactions at this rate, âaccording to the 2018 Staff Report of the Consultation on Article IV.
The IMF team said T&T faces unprecedented challenges in 2020/2021, as the combined effects of Covid-19, power generation cuts and price shocks pushed the economy further into the economy. recession, with real GDP contracting 7.4% in 2020 and estimated to contract further by 1% in 2021.
“The authorities’ decisive policy response has helped contain the spread of Covid-19, protect lives and livelihoods and pave the way for a strong recovery,” according to IMF staff.
But the mission warned: âOnce the recovery is firmly in place, policy attention should focus on reducing public debt levels and rebuilding fiscal buffers, backed by a credible fiscal framework. The Central Bank must remain vigilant in the face of any build-up of financial vulnerabilities. Structural reforms remain vital to support sustainable and inclusive growth.
Strong growth next year
The IMF predicts a strong recovery in the T&T economy in 2022.
âReal GDP growth in 2022 is expected at 5.7%, bolstered by continued political support and the expected recovery in oil and gas production. Nevertheless, production would remain below pre-Covid-19 levels well in the medium term, âthe IMF mission told T&T.
Staff members also predicted that “with demand pressures contained, headline inflation in 2022 is expected to be around 2.4%.”
The IMF also expects the budget deficit (the difference between spending and revenue) to narrow in the current fiscal year to 7.5%, but has predicted that public debt will remain high.
âThe budget deficit is expected to narrow to 7.5% of GDP in FY2022, reflecting a combination of increased revenue mobilization and modest spending cuts. In the medium term, the budget deficit is expected to gradually narrow and reach balance by fiscal year 2027. “
Staff expects central government debt to peak at around 69% of GDP in FY2023 and gradually decline.