The International Monetary Fund (IMF) yesterday called on the Government to remove restrictions on foreign exchange availability for current international transactions, even as the Washington DC-based institution predicted a strong recovery for the domestic economy in 2022.
The IMF comments came in the concluding statement of its 2021 Article IV consultation with Trinidad and Tobago, the first such assessment since August 2018. The Article IV consultation is usually an annual, comprehensive discussion between IMF staffers and representatives of member countries.
Under the rubric Modernising Monetary and Exchange Rate policy, the IMF staffers said: “The mission underscored the need for an appropriate policy mix to support the exchange rate regime and called for the removal of restrictions on current international transactions.
“The authorities are encouraged to modernise foreign exchange and money market infrastructure to reduce inefficiencies and imbalances to support the sustainability of the existing arrangements.
“Looking to the future, 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.”
Counter-cyclical monetary policy includes reducing interest rates and increasing money supply as the Central Bank did on March 17, 2020 when it cut its key policy interest rate, the repo rate, by 1.50 per cent, while reducing its reserve requirement to 14 per cent from 17 per cent.
The IMF staff went on to say that the mission “encouraged the authorities to remove all restrictions on current international transactions while providing sufficient foreign exchange to meet demand for all current international transactions.”
On the definition of current international transactions, the IMF document titled Annual Report on Exchange Arrangements and Exchange Restrictions 2020 makes clear that these transactions go beyond availability of foreign exchange for trade-related purposes.
“The CBTT also limits sales of its foreign exchange intervention funds to meeting only “trade-related” demand, which do not include non-trade transactions that are, however, current international transactions as defined under Article XXX(d) of the IMF’s Articles of Agreement, and encourages authorised dealers to similarly prioritise sales of foreign exchange obtained from other sources.”
The Central Bank and the Ministry of Finance have maintained restrictions on the availability of foreign exchange for non-trade-related purposes since 2014. The Central Bank sets the rates at which foreign exchange is bought and sold “while not providing enough foreign exchange (ie, through the CBTT ’s foreign exchange interventions) to meet all demand for current transactions at that rate”, according to the 2018 Article IV Consultation…
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