TT finance minister says no to devaluation and IMF
The Trinidad & Tobago government said it has no intention of devaluing the local currency, arguing that it would lead to higher inflation and “an immediate increase” in the price of imported goods.
In addition, Finance Minister Colm Imbert said the seven-year-old Keith Rowley administration has no intention of turning to the International Monetary Fund, IMF, for assistance to further boost the economy.
Speaking at a news conference on Monday on issues arising from the IMF’s 2023 Article IV review of Trinidad released last week, Imbert told reporters that any devaluation of the local currency would present hardship for the population.
From 1972 to 1976, the TT dollar was floated against the British pound sterling; however, after 1976 it was pegged to the United States dollar. The first major adjustment of the TTD since then occurred in December 1985, when the currency was devalued 50 per cent against the US dollar.
In its latest report, the IMF said that it was encouraging Trinidad to continue “maintaining sound and consistent policies to support the current exchange rate arrangement” and to consider a hike in interest rates.
“The Central Bank of Trinidad & Tobago has maintained its repo rate at 3.5 per cent since March 2020 to support the recovery of the economy. Increasing the policy rate should be seriously considered to contain inflationary pressures and narrow the negative interest rate differentials with the US monetary policy rate,” the IMF said.
“This would also help mitigate potential risks of capital outflows and reduce incentives for excessive risk-taking that could threaten financial stability.”
If the TT dollar had to be devalued at a rate of say 10 to one, “which would be a 50 per cent devaluation or a 40 per cent devaluation, you would have an immediate increase in the cost of imported goods and you would have immediate demands from the labour unions, which would be very difficult to challenge, for increased wages”, Imbert said.
“This in itself would have …a domino effect on inflation. I think any serious person would know that if we devalue the dollar there would be significant inflation, and it would send our people into poverty,” he said.
“You don’t have to be a rocket scientist to figure out if you devalue the dollar significantly – because we have a high import bill, because so many manufactured goods come from abroad, so much of our food comes from abroad, and also you would have demands from the labour unions – that there will be an inflationary increase that will be unsustainable. I don’t think we need to debate this point,” he added.
The finance minister said Trinidad was not in a distressed status, adding that the country had enough reserves to give it an import cover of eight months, and therefore had no need to seek assistance from the IMF as a lender of last resort.
“Some countries, I am told, count the amount of money they receive every single day and then when they figure out how much money they have today, they then decide what bills they pay tomorrow,” said Imbert. “We are nowhere near there.”
Central bank data to February shows that Trinidad has US$6.75 billion of net reserves, enough to cover 8.5 weeks of imports.
“Our public debt has stabilised at about $129 billion and our debt-to-GDP ratio is coming down, our current account is in surplus, our balance of payment is positive. So we don’t need to go to the IMF,” Imbert added.
He cited the example of Jamaica, saying it was “forced by the IMF, as a conditionality, to post a surplus. And by posting a surplus, they had to cut their expenditure and had to reduce their expenditure on social programmes”, he asserted to reporters.
“So one does not want to go there, and we have no intention of going there,” he said.