Colourful black market

In Trinidad and Tobago, foreign currency inflows are dependent on exports of natural gas and crude oil. These have been undercut by low energy prices and falling production. In the midst of weak capital inflows, foreign reserves have declined and foreign currency scarcities have become a regular occurrence.

This country’s monetary authority utilizes a managed float. This year, because of a combination of fiscal pressures and a deteriorating external account, the Central Bank of Trinidad and Tobago (CBTT) allowed the currency to depreciate and it ended 2016 at TTD6.75/USD, with an average rate of TTD6.64/ USD.

What is the likely trajectory for the currency? This is quite simple and if one were to read the tea leaves, it becomes obvious. During the last six months, at least, we have seen various examples of downward pressure being exerted on the currency. Many citizens who are unable to get foreign currency from the banks have resorted to alternative sources, and in this country, these are a dime a dozen, so far. BMI Research reports that on January 15, the going rate on the black market at Piarco International Airport was TT$8.20 to the US dollar. Certainly, what we have seen is the development of an informal parallel market in this country - maybe even signs of deeper black market.

The shortage of foreign currency has resulted in very creative schemes. Local media reported that in December 2016, the Bank of Guyana stopped the purchase of Trinidadian dollars, possible confirmation that citizens of this country were purchasing US dollars from Guyanese exchange bureaus.

If the supply of foreign currency continues as it is, or gets worse, one can expect CBTT to continue its relatively conservative approach to allow the currency to depreciate. The BMI estimates that if there is no change in world price of gas or oil, and equally important, if the anticipated new supplies of gas fail to come on stream, then TT$7.40 per US dollar by end-2017 is possible. Hopefully the coming on line of the Juniper fields will save us from such a possibility. Even so, an exchange rate of over TTD7.00/ USD is possible by August, if not sooner. One would expect CBTT to be tentative to pursue a more aggressive speed of depreciation, mainly because of fears that it can lead to inflationary pressures, and the difficulties that the people operating below the poverty line, the unemployed and the dispossessed will face.

What will happen beyond six months will depend on the size of increase brought on by Juniper’s production, the size of the possible increase in gas and oil prices and the increase in conversions by the energy companies as they pay higher taxes to the government (assuming 100 percent capital write off will be no longer in effect). At this point it is impossible to make a firm prediction beyond six months