TT Chamber calls out Government, demands action on forex crisis

A cash transaction of TT dollars, right, for scarce US currency, left, amid the ongoing forex crunch. FILE PHOTO -

THE TT Chamber of Industry and Commerce has called on government and other stakeholders to take urgent action to address the country's foreign exchange (forex) situation.

In a statement and accompanying working paper on December 19, the chamber said, "Doing nothing is not an option."

The chamber added the latter outlines. "the scale, causes, and solutions to the country’s worsening forex crisis, warning that inaction is no longer a viable option for the national economy."

This situation, the chamber continues, requires broad-based engagement and a multistakeholder approach.

Government, Central Bank and the private sector were identified as the stakeholders who must be engaged to find solutions to this problem.

The chamber said the complexity of the forex challenge means there is no single policy lever or quick fix.

"Instead, solutions must be developed through coordinated dialogue, evidence-based policymaking and shared responsibility."

The chamber said its paper highlights that there is now broad national awareness that the existing framework is under strain.

"Businesses across sectors are experiencing delayed access to foreign currency, rising operating costs and reduced competitiveness, while black market activity signals deeper market imbalances."

The chamber warned these conditions are not sustainable and will worsen over time if left unaddressed.

"Delaying reform risks entrenching shortages, accelerating capital flight, widening market distortions and ultimately forcing a more disruptive and costly adjustment in the future."

The chamber said, "By contrast, timely, coordinated action offers a more orderly and credible path toward stability."

TT relies heavily on imports

The forex shortage, the chamber continued, is now a nationally recognised challenge affecting businesses of all sizes, households and the country’s long-term development prospects.

"Persistent shortages, growing uncertainty and widening market distortions are undermining business continuity, weakening investor confidence and constraining economic diversification."

The chamber repeated its commitment to constructive engagement with policymakers, regulators and the wider society to support a national solution to TT's forex challenge.

In its paper, the chamber identified the current exchange-rate regime, declining energy production and high dependence on imported goods as the key drivers of the forex challenge.

On the exchange-rate regime, the chamber claimed this has resulted in the TT dollar being overvalued for more than a decade.

"There should be an alignment of the exchange rate to match demand and supply, and an urgent need for an equilibrium reset of the exchange rate."

The chamber said, "This would encourage a redirection of inflows through the official channels ( the licensed financial institutions). An overvalued currency, the chamber continued, effectively subsidizes imports while penalising export-led growth.

The chamber said this makes the economy more dependent on foreign goods and limits the development of non-energy industries that could otherwise earn forex.

"In this environment, businesses face chronic delays and uncertainty in accessing forex, while the Central Bank is pressured to intervene continuously, further straining limited reserves."

The chamber repeated the decades long position about the economy being overly reliant on the energy sector which contributes over 80 per cent of TT's forex.

"Even modest declines in production have outsized impacts on the broader economy. As forex inflows tighten, the country's capacity to meet normal import requirements deteriorates, exposing the vulnerability of an economic structure overly reliant on one sector. "

The chamber said the forex problem is compounded by TT's high dependence on imported goods, especially in critical areas namely food, vehicles, pharmaceuticals and manufacturing inputs.

"This structural dependence means that demand for forex remains high even when supply contracts. Food imports alone exceed $5 billion annually, while the local appetite for new and used vehicles places continuous pressure on forex allocations."

Chamber's suggestions

The chamber made suggestions to government, Central Bank, private sector and the population about how each of them could contribute to solving the current forex challenge.

Government was advised to align the exchange rate with market demand and supply. The chamber said doing this now will be safer, less costly and more orderly than if a forced correction is made later.

The chamber said, "Allowing the exchange rate to adjust toward its market-clearing level, guided by transparent monetary policy and supported by structural reforms, offers the most credible and sustainable path to restoring stability in the forex market."

Government, the chamber continued, should not exercise administrative contols in this exercise and base its forex management decisions in data, best practice and evidence.

"Global best practice emphasises transparency, credible monetary frameworks, market-based allocation and incentive structures that promote exports rather than consumption.

The chamber said the Central Bank should initiate "a gradual transition toward a more flexible and transparent exchange rate framework." Such a framework, the chamber continued would allow the exchange rate to adjust within a pre-determined band, reducing uncertainty while enabling the market to respond to real economic conditions.

The chamber advocated for the private sector to take a collective response that focuses on increasing forex inflows and curbing unnecessary outflows.

"Businesses can play a critical role by supporting measures that encourage the repatriation of profits, attract greater foreign direct investment and leverage remittances more productively through formal channels and domestic investment opportunities."

The chamber suggested the acceleration of import substitution where viable, "reducing the economy’s structural dependence on forex. The chamber's statement comes after Moody revised TT's economic outlook from stable to negative last week. Standard and Poor's (S&P) did a similar revision in September. Both revisions were based on declining forex reserves.