Noble: Budgets, Foreign Exchange and Petro-Jumbies

Noble Philip Sunday 24 September 2023 Guest Columns, View Point 1 Comment

“The real problem is that oil dollars have reduced us all to ‘petro-jumbies’, a people who have never explored our creativity, our talents, our potential.

“For generations, we have been lazy slobs, knowing that the oil dollar, down today but up tomorrow, will rescue us from ruin, cushion fuel prices, allow us to enjoy dog-cheap water, electricity, low- or no productivity.”

Raffique Shah, Express, December 2015.

Prime Minister Dr Keith Rowley (second from left) and Venezuela President Nicolás Maduro (right) dance to calypso after a meeting at Miraflores presidential palace in Caracas on 5 December 2016.
(Copyright AFP 2017/ Federico Parra)

We are full circle back to where we were in 2015. We are behaving as though 2015 never happened. Since then, we have had Covid-19, the Russia-Ukraine war, which wreaks havoc with global supply chains and geo-economic fragmentation (such as the rise of BRICS) and the withering effects of climate change.

How are petro-jumbies to react to this scenario? What are these jumbies calling on Minister Colm Imbert and the Government to do?

In December 2015, then Central Bank Governor Jwala Rambarran admonished: “…the insatiable demand for US dollars that exists in Trinidad and Tobago will always trump whatever distribution system is in place.

“[…] The current shortage of US dollars will not be solved unless we dramatically change our consumer-driven, heavily import-dependent behaviour. The import content of our consumer spending is at least 80 per cent.”

He put his finger on the sore: “The foreign exchange market has always experienced imbalances. These imbalances arise because foreign exchange supplies are irregular and enter the market at discrete intervals, but demand is always high and continuous throughout the year.”

Now, in September 2023, Minister Imbert faces the same problem: “There has also been an explosion in online shopping over the last several years, which is driving up the usage of US dollar-denominated credit cards, as consumers take advantage of the availability of cheaper goods overseas.”

Rambarran had put a number to this problem, “credit card payments accounted for US$1.8 billion over the past three years”.

Mr Imbert points to online shopping as the driver of credit card usage, but is it? Given the timing “the last several years” (the same period we were going through the pandemic), what are those cards being used to purchase and by whom?

Photo: A shopper prepares to make an online purchase.

Broad brush data analyses do not lead to precise beneficial policies.

Has the behaviour of the business sector been factored in between the two years (2015 and 2023)?

In 2015, we were advised that the manufacturing sector was the second largest foreign exchange consumer, using nearly US$2 billion in 2013-2015, or just under 15 per cent of total supply. Rambarran then argued for help for the sector as a means of diversification.

The Fernandes Industrial Compound in Laventille.

Imbert points to the recovery of the non-energy economy: “The issue, therefore, is not simply the availability of foreign exchange in 2023… but rather, it also is the demand.

“There are several reasons for the increased demand… the growth in the economy…is driving this increased demand as businesses seek to expand their operations and import equipment, raw materials, and finished products…”

He quickly adds: “…the repatriation of foreign exchange earned through export earnings, which reached a high in 2022, is decreasing, as some businesses are choosing to keep their forex overseas for various reasons.”

Was Minister Imbert speaking about the local manufacturing sector? In his 2022 budget speech, he noted that it generates significant foreign exchange and is a major employer with over 52,000 persons. This sector exported 7.4 billion in 2020, which rose to 10.8 billion in 2021.

He said preliminary data for the first half of 2022 demonstrates a continuation of this trend, with the first half of 2022 non-energy manufacturing sector exports valued at $6 billion, 17 per cent higher than the previous year. In the same speech, he noted that $30 billion was borrowed to keep the economy afloat. (Hansard, September 2022).

Urgent clarification of Imbert’s statement relative to businesses holding foreign exchange abroad is required. As the old people say, “One hand cyar clap!”

In light of continuing global uncertainties, IMF deputy managing director Gita Gopinath advised: “Foreign exchange interventions should not be used to target a particular level of the exchange rate or as a substitute for warranted macroeconomic adjustment.”

In other words, we should drink our bush tea and fix our business rather than push for foreign exchange rate adjustments.

The Economic Policy Uncertainty (EPU)—uncertainty about government policies related to inflation, sovereign debt sustainability, interest rates, central bank independence, tax cuts, and the fiscal deficit—raises many difficult questions and affects currency movements and returns in currency markets.

International Monetary Fund (IMF) chief economist Gita Gopinath speaks during a press conference in Washington DC on15 October 2019
(Xinhua/ Liu Jie/ IANS)

While this is not entirely in Minister Imbert’s hands, he can do more.

On the other side of the equation, Gopinath pointed to the need to streamline tax collection and implement better tax administration via digitalization. She also indicated the potential for property taxes, describing them as “efficient taxes that can be designed to be progressive—with appropriate relief for low-income households”.

Some still grumble about the Revenue Authority and the Property Tax, demonstrating that Shah’s assessment of us as petro-jumbies was accurate.