When one com­bines the forex short­age with the ris­ing na­tion­al debt, and adds the need for rev­enue gen­er­a­tion, the de­sir­abil­i­ty of re­duc­tion of ex­pen­di­ture, and the ne­ces­si­ty to curb im­ports to re­duce forex ex­pen­di­ture, one be­gins to sense the grav­i­ty of the prob­lem in Trinidad and To­ba­go.

The size of the forex pool has to be grown be­yond re­duced en­er­gy ex­ports. More nat­ur­al gas pro­duc­tion will help. But we are un­like­ly to see in­creased pro­duc­tion un­til 2028. High­er nat­ur­al gas prices, and con­se­quent­ly high­er petro­chem­i­cal prices and high­er LNG prices, will al­so help. But our pro­duc­tion has dropped from 4.0 mmb­tu to 2.7 mmb­tu. And oil prices are low, as is pro­duc­tion. Gas prices are cur­rent­ly more buoy­ant.

These fi­nan­cial prob­lems are at the heart of our eco­nom­ic stag­na­tion chal­lenge. Why? Be­cause the per­sis­tent and se­vere short­age of US dol­lars is, in fact, the most crit­i­cal struc­tur­al im­ped­i­ment to non-en­er­gy sec­tor growth and eco­nom­ic di­ver­si­fi­ca­tion. To make di­ver­si­fi­ca­tion hap­pen, forex has to be ac­ces­si­ble.

T&T is in this sit­u­a­tion for many rea­sons. We have lived on a cy­cle of booms and busts and en­er­gy de­pen­dence for too long. We have re­tained on­ly mod­est sav­ings in the HSF, which, as a coun­try, we es­tab­lished too late. We have been liv­ing be­yond our means and get­ting and spend­ing while lay­ing waste to our hours. We have been on deficit bud­gets since 2009. For the ten-year pe­ri­od 2015 to 2025, lit­tle was done to ad­dress this cri­sis, which had be­gun to deep­en in this cy­cle since 2014.

So it is not this gov­ern­ment’s fault that the cri­sis is so se­vere now. But it falls to this gov­ern­ment to con­front this cri­sis head-on. If it is not dealt with now, a fi­nan­cial and eco­nom­ic cri­sis will trans­form in­to a so­cio-po­lit­i­cal cri­sis. And such ten­sions might un­fold at a time when the spill-over ef­fects of what­ev­er hap­pens in Venezuela are like­ly to be un­pre­dictably im­pact­ful on T&T. So in the short term, the fi­nan­cial and eco­nom­ic cri­sis, with the po­ten­tial to be­come a so­cio-po­lit­i­cal cri­sis, to­geth­er with the spill-over im­pact of what might hap­pen in Venezuela, could all con­verge at a high­er lev­el of in­ten­si­ty. Con­fronting the forex cri­sis can­not be post­poned any­more.

The struc­tur­al de­cline in nat­ur­al gas and crude oil pro­duc­tion is not go­ing to go away soon. And while work pro­ceeds on in­creased lo­cal pro­duc­tion, deep­wa­ter in­vest­ment, Man­a­tee, and even Drag­on, plus time, cir­cum­stance, and mil­i­tary stand-off with con­se­quences, make T&T’s sit­u­a­tion more ten­u­ous than ever.

As long as there is a forex short­age with­out a prospect of re­plen­ish­ment, two things will con­tin­ue. First of all, hoard­ing and pri­vate hold­ings of hard cur­ren­cy will per­sist. This fur­ther re­stricts the sup­ply avail­able to au­tho­rised deal­ers. Forex short­age al­so stim­u­lates a black mar­ket, which is now about TT$8 to US$1. A par­al­lel black mar­ket dri­ves up the cost of im­ports, is an un­of­fi­cial de­val­u­a­tion, and di­verts from the of­fi­cial pool.

Short­ages sti­fle small and medi­um busi­ness­es and their op­er­a­tions as they strug­gle to get forex for es­sen­tial im­ports such as raw ma­te­ri­als, ma­chin­ery, and phar­ma­ceu­ti­cals. These in turn lead to op­er­a­tional de­lays, high­er costs, re­duced pro­duc­tion and pro­duc­tiv­i­ty. High­er costs are passed on to the cus­tomer, and fu­el in­fla­tion.

Most sig­nif­i­cant­ly, how­ev­er, the lack of eas­i­ly ac­ces­si­ble forex dis­cour­ages in­vest­ment in new, non-en­er­gy, ex­port-ori­ent­ed in­dus­tries. This traps the na­tion­al econ­o­my in­to con­tin­u­ing de­pen­dence on the de­clin­ing en­er­gy sec­tor as we wait for new oil finds, Man­a­tee, and Drag­on.

More than 25,000 cars are im­port­ed in­to this coun­try at a cost of about US$330 mil­lion an­nu­al­ly. An elim­i­na­tion of this im­port for three years will save US$1 bil­lion (two months of im­port cov­er). Re­duc­ing food im­ports by 50 per cent will save US$500 mil­lion an­nu­al­ly. Three years will save US$1.5 bil­lion.

In three years, we can in­crease the flow of tourists, im­prove self-suf­fi­cien­cy in food, work with the ex­port man­u­fac­tur­ers to ex­port more, forge in­vest­ment part­ner­ships with for­eign firms that bring mar­kets, up­scale tech­nol­o­gy and link and in­te­grate T&T in­dus­tries with the glob­al val­ue chain. We can boost the coun­try to be more com­pet­i­tive by ad­dress­ing ports, cus­toms, and oth­er Ease of Do­ing Busi­ness mech­a­nisms and dig­i­tal­i­sa­tion. These are the es­sen­tial tasks to do.

The ul­ti­mate so­lu­tion is man­ag­ing the pegged and con­trolled ex­change rate. Some econ­o­mists ar­gue that the man­aged float sys­tem keeps the TT dol­lar over­val­ued. An over­val­ued cur­ren­cy ar­ti­fi­cial­ly cheap­ens im­ports and makes lo­cal ex­ports more ex­pen­sive and less com­pet­i­tive. This per­pet­u­ates high im­port de­mand as well as sup­press­es non-en­er­gy ex­ports.

Three years of ef­fec­tive work could get us to a place of high com­pet­i­tive­ness and a means of forex sus­tain­abil­i­ty, which could then al­low T&T to re­cal­i­brate.