T&T IS THE WORLD’S LARGEST LOSER (NOT USER) OF FOREIGN EXCHANGE
When next you hear the authorities say Trinbagonians demand too much foreign exchange, we import too much ‘luxury’ items, we shop online too much, we use foreign credit cards too much, we travel too much, and we get blamed for all the foreign exchange problems in T&T, stop and think about this — for the past 12 years (2011–2023), over USD25 billion has gone missing from our country. On average, OVER TWO BILLION US DOLLARS each year just disappears, and nobody has been able to account for it, ever. But have you ever seen this in the news?
Using the IMF’s global database with data for 2011–22, we see that the Errors and Omissions (E&O) item (which is supposed to be an insignificant balancing item due mainly to statistical errors) on the balance of payments account (which accounts for all the cross-border transactions of a nation, such as international trade, foreign (direct) investment, remittances, etc.) for T&T shows a net outflow of USD23 billion that we can’t account for. This is about 77% the size of our economy (2022, IMF) and over USD16,000 per person. On a per capita basis, we are the world’s largest losers of foreign currency. Only 20 countries globally have lost more in absolute USD than we have from 2011–22, and only 3 countries — Djibouti, Liberia, and the Marshall Islands — have lost more relative to GDP.
T&T’s national debt level is lower than 77% of GDP, so we lose more USD than our Government has borrowed. If you look at the FX reserves charts later in this report, you will see that T&T is the only country where reserves consistently trend downwards, declining by 48% from a USD11.5 billion peak in 2014 to USD5.98 billion in June 2024. In the absence of Government borrowing and withdrawals from the HSF, T&T’s FX reserves would be only USD157 million in March 2024, which is roughly one week of import cover. But what explains E&O hemorrhaging?
WE LOSE THE MOST USD PER CAPITA IN THE WORLD VIA ERRORS & OMISSIONS
The weaker the statistical infrastructure, the less accurate the data will be, so this (not surprising given our overall weak and declining institutions) is one likely explanation. But if statistical weakness was the biggest explanatory factor, one would expect the E&O item to be a fairly random number — positives and negatives, large and small. But T&T’s E&O item has been consistently negative every year since 2011 (the earliest data available), meaning we have an undocumented net outflow of USD each year that we can’t account for. Furthermore, apart from 2012 and then 2020–21 (COVID?) the E&O item has consistently exceeded USD1 billon each year, the highest being USD4.8 billion in 2013. And this pattern in the data suggests that something else, apart from statistical weakness, is at play.
Recall that the TTD is overvalued vs the black market FX rate which ranges from TTD7.50–10.00/USD, and that by maintaining the exchange rate at roughly TTD6.76/USD, the Government is effectively subsidizing the sale of USD and therefore artificially creating a level of (speculative) demand for USD that would otherwise not exist at say TTD10.00/USD. Furthermore, the unavailability of USD creates a level of precautionary demand for USD that does not exist elsewhere in the Caribbean, for example. All of this drives a lack of confidence in the TTD and a preference for USD, and capital flight. The Government has created a massive incentive for us to find, earn, buy, hold and take overseas as much USD as we can. And this perverse incentive, combined with our weak institutions and poor crime detection is flammable, bleeding into the (regional, gang-related) crime associated with the northward movement of narcotics, and the safe return (and laundering) of USD back to the producers primarily in Latin America.
The best way for USD to leave our country undocumented is via cash and portable valuable goods such as jewelry. But I am certain that it is purely coincidental that our E&O losses took off just when the previous Government introduced direct flights to Panama and London (reputed to be money laundering hotspots), and that our E&O losses were lowest during COVID when borders were closed. As with traffic jams and crime, we lose immeasurable precious time, effort, talent and perhaps even lives, navigating our nation’s USD shortage created not by any error or omission, but by successive Governments’ deliberate and harmful policy choices.
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