The truth about forex woes

Paolo Kernahan

WHICH WOULD you like first, the good news or the bad news?

Just kidding. It's all bad news.

Our forex woes aren't likely to ease up. This is troubling, given our reliance on imports. Moreover, the grand illusion of our economy – a franchise paradise, luxury cars on potholed roads, new business ribbon-cuttings – will continually fade.

Republic Bank came like...a bank in the night slashing its credit-card US spending limit by half – down from US$10,000 to US$5,000.

While public chatter focused on RBL, most other banks were already there. This was yet another grim sign that palpable forex shortages, entrenched for several years, are now only becoming more chronic.

Many of us have experienced being required to present to banks a valid plane ticket, DNA sample and a Vatican-approved holy relic to come back tomorrow to buy US$200 – and still get a meggie.

SMEs (small and midsize enterprises) importing goods either juggle credit cards, resort to black-market US sources (with links to drug smuggling, human trafficking, regional gang networks, murder, etc) or just fold up shop.

No clock ticks more loudly than that of the citizen trying to scare up desperately needed US currency to have urgent, life-saving medical treatments abroad.

So a former government minister saying there's no forex shortage is like a dentist telling you what you're experiencing right now is a back rub.

The long-running forex drought can be explained quite simply – we spend far more than we earn.

How could it be that TT, once the wealthiest country in the region, is crippled by a scarcity of forex?

It's a subject economist Marla Dukharan explored in minute detail in a 2019 report. In it, she explains most of our forex earnings come from energy and energy-related exports. However, oil and gas revenues have been falling steadily, either owing to declining prices or diminishing production.

The Central Bank supplies local banks with forex. It gets this currency from taxes collected by the Government from energy companies. Less earnings from the energy sector equals less forex sold to commercial banks. So that US$200 you were hoping to scrape up oscillates between unlikely and laughably impossible.

In 2018, 86 per cent of our exports came from the energy sector. That isn't a sign of growth. Non-energy exports – foods, manufactured products, etc – fell by 59 per cent in 2018 compared to 2013. In 2018 non-energy exports accounted for just 14 per cent of the total figure.

As Dukharan points out, it's unclear where those forex earnings go – how much makes its way back home and how much is squirrelled away in foreign accounts. At any rate, the data shows rather than becoming a more diversified economy – with multiple streams of forex income – we are reverting squarely to one-string-banjo territory.

Forex deficiencies and other signs of economic paralysis are, in part, the grand design of both fiscal policy and the absence of it. An overvalued TT dollar (42 per cent by the IMF's reckoning) is a de-facto subsidy on imports. This makes importing goods more profitable than producing them locally.

Consequently, our products struggle to compete on the world market. "Cheap" forex is the poisoned chalice – so fill it up, barkeep!

Finance Minister Colm Imbert frequently cites online shopping in conversations about forex challenges. The naked inference is that Trinis with fancy tastes are smacking their lips on vast quantities of US dollars.

The Government is, in fact, the largest consumer of forex. Apart from being the largest employer, it borrows money on the international market to sustain imports of your food, clothes, cars and lifestyles. The administration must then extract from any middling revenues from the energy sector to service those debts – in US dollars.

Dukharan's report also notes we earned less from non-energy exports in 2018 than we spent to import fuel (US$1.75 billion). You will recall Petrotrin was shuttered because it was haemorrhaging money – US dollars we're haemorrhaging right now to import gas.

So it's not that laptop or smartphone you're ordering online that's punching holes in forex reserves; that's just part of a wider malaise.

The only way to tackle the shortfall is to shore up local manufacturing and economic diversification; increase the volume of sources that can earn us US. This won't happen, because the Government insists on defending an indefensible exchange rate.

Additionally, like a drug dealer chastising a pesky piper, this administration simply can't come to terms with an affliction that it and other administrations actively encouraged.