Economist: Value in devaluing TT$ at this time

Hosein said demand and supply should be allowed to determine what the exchange rate should be.

He said a devaluation will, in the short term, affect the level of import spending in the country but over the long term it would increase the price of foreign goods. This, he said, will encourage households and other “economic agents” to gradually shift their consumption patterns, which have become very consumer-oriented, and that can help to dampen the amount of import expenditure.

He added that if appropriately managed, a devaluation can help to increase export revenue generation.

However, a devaluation will not work if the State continues to intervene in the labour market and starve the domestic private sector of important chunks of the work force tied up in make-work and other such programmes.

He made the comment in response to the latest downgrade of this country, this time by Moody’s Investors Services, which on Tuesday downgraded the country’s issuer and senior unsecured debt ratings to Ba1 from Baa3 and assigned a stable outlook. Moody’s action followed the other major rating agency Standard & Poor’s which on April 21 also downgraded the country.

Moody’s based its action on three factors: It found that the authorities policy response has been insufficient to effectively offset the impact of low energy prices on government revenues, as fiscal consolidation efforts have mostly relied on oneoff revenue measures. It concluded that there has been a steady rise in debt ratios driven by large government deficits and this has eroded the country’s fiscal strength.

Hosein said that indicates that the agency believes the State has been relying on one-off revenue measures which, he said, will come to an end at some point. He said apart from the property tax, the State has not been making a significant genuine effort to increase Government revenues. He said it did make some attempts in February 2016 with the Value Added Tax when it widened the net to include previously non-VAT items but reduced the rate to 12.5 percent from 15 percent