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Heed IMF’s exchange rate advice

Wednesday, July 11, 2018
Senior economist:

Senior economist Dr Ronald Ramkissoon says there are aspects of the latest International Monetary Fund (IMF) report that T&T must to pay particular attention to for the country to move forward. He said the report recommends certain actions regarding the budget deficit and the exchange rate.

“We also need to pay particular attention to what are the downside risks. The forecast is for marginal growth going forward which is understandable given what is likely to happen in respect of the increase in natural gas production and the impact in revenues and the impact on the non-energy sector,” he said.

“But really what it is doing is bringing us back to same old same old and to the hope that we will not have a significant decline in energy prices or production again.”

The IMF said T&T’s economy has revealed signs of improvement driven by energy sector growth from the second half of 2017. It also noted significant progress by Government in implementing fiscal consolidation and improved data collection.

Ramkissoon said T&T should be tired of “this roller coaster ride” .

“After close to 60 years we should as a country, policy makers and as citizens be tired of this roller coaster ride and we should see that this marginal growth, while positive, will not make a major dent on some of the problems that are affecting us,” he said.

He said there has been a general consistency in the IMF reports which should receive far more attention, particularly the fundamental changes T&T needs to make.

Zeroing in on the foreign exchange rate Ramkissoon said: “If we went to maintain an exchange rate along the lines that we have been maintaining it for the last few years then we have to do much better on the expenditure side and on the fiscal side.

“What we are in effect saying is that this managed rate . . . we are comfortable more or less with where it is. If that is the case then we need to tighten the fiscal aspect and begin to generating surpluses.”

Ramkissoon added that the market therefore must be “flooded” with foreign reserves to avoid long lines.

He said if T&T wants to maintain the nominal exchange rate where it is, there are other things which must be done.

Citing Barbados as an example he explained: “Barbados wanted to maintain a fixed exchange rate but did not want to do the complementary things you had to do with it which was to cut expenditures drastically to bring the fiscal accounts in line so that it will not put pressure on the exchange rate.

“We cannot have our cake and eat it and that comes out clearly in the IMF’s report.”


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