Trinidad and Tobago’s forex challenge: From diagnosis to decisive action.
Trinidad and Tobago is facing a foreign exchange (forex) challenge that has moved well beyond technical debate and into the realm of national economic urgency. What was once viewed as a cyclical constraint has become a structural issue, with real consequences for business continuity, investment confidence, and the country’s long-term diversification ambitions.
For many businesses, particularly small and medium-sized enterprises (SMEs), manufacturers, service providers, and new exporters accessing foreign exchange has become increasingly unpredictable. Firms report delays in securing forex for essential imports, higher operating costs due to informal market premiums, and an erosion of competitiveness in both regional and international markets. At the same time, the widening gap between the official exchange rate and parallel market pricing signals deeper distortions in how foreign currency is supplied and allocated within the economy.
This is not simply a business problem. It is a national economic challenge that affects jobs, prices, investment decisions, and the pace at which Trinidad and Tobago can transition to a more diversified and resilient economy.
Understanding the roots of the crisis
To address the forex challenge effectively, we must be clear about its underlying drivers. The first is an exchange rate that no longer reflects the realities of supply and demand. An overvalued TT dollar creates excess demand for foreign currency while discouraging inflows through official channels. When prices are administratively fixed below market-clearing levels, shortages are inevitable.
Second, TT continues to experience a structural decline in oil and gas production. Aging fields delayed upstream investment, and intense global competition for capital have reduced energy output over time. Given that the energy sector historically provides more than 80 per cent of the country’s foreign exchange earnings, even relatively modest declines in production have an outsized impact on the wider economy.
Third, the economy remains heavily dependent on imports. Fuel, vehicles, pharmaceuticals, and manufacturing inputs account for a significant share of foreign currency demand. While this dependence is unlikely to change in the short term, the challenge lies in how foreign exchange is priced and allocated. A widening gap between official and market exchange rates can unintentionally favor imports while making exports less competitive, affecting production decisions across the economy and leading to a misallocation of resources, with fewer being directed toward essential needs.
Finally, uncertainty itself has become a driver of the problem. When businesses anticipate prolonged shortages or future exchange rate adjustments, they tend to hold on to foreign currency earnings rather than convert them into TT dollars. While this behavior is rational at the firm level, it reduces circulation within the formal banking system and pushes more activity into informal markets.
What the data is telling us
The data reinforces what businesses are experiencing on the ground. TT has seen only two major exchange rate adjustments since the early 1990s, followed by long periods of relative stability. Since 2017, the selling rate has remained effectively fixed, reflecting administrative management rather than market-clearing dynamics.
While stability can be beneficial, prolonged misalignment has contributed to recurring shortages and steady pressure on foreign reserves. Net official reserves have declined over time, reflecting weaker energy revenues and the cost of supporting an overvalued exchange rate. Import cover has narrowed accordingly, even as headline reserve adequacy metrics remain within conventional benchmarks.
At the same time, foreign currency deposits in the domestic banking system have increased significantly. This suggests that foreign exchange exists within the system but is not circulating efficiently. In practical terms, it reflects confidence challenges and structural constraints in intermediation rather than an absolute absence of foreign currency.
Export performance tells a similar story. Energy exports continue to dominate earnings, while non-energy exports remain constrained by relatively high production costs and an exchange rate that does not reflect underlying fundamentals. Temporary foreign exchange distribution mechanisms and administrative controls may ease short-term pressures, but they cannot resolve the structural imbalance created by an overvalued exchange rate. As a result, exporters face reduced competitiveness, as locally produced goods become relatively more expensive in international markets.
Aligning the exchange rate with economic reality
A central element of any credible solution must be a move toward an exchange rate that better reflects demand and supply conditions. Aligning the TT dollar with economic fundamentals would help restore balance to the forex market, reduce pressure on reserves, and improve transparency for businesses.
Concerns about inflation are often cited as the primary objection to exchange rate adjustment. However, TTs own history shows that inflationary impacts following past adjustments were manageable, particularly when supported by prudent monetary and fiscal policy. A more market-aligned exchange rate would improve competitiveness, encourage exports, and reduce the distortions that currently fuel excess demand.
For businesses, predictability matters as much as price. Transparent access to foreign exchange at realistic rates allows firms to plan, price, and invest with greater confidence, an essential condition for growth and expansion.
Bringing the parallel market into the light
The existence of a parallel or black market is not a moral failure; it is an economic signal. Such markets emerge when official systems cannot meet demand at the prevailing price. Participants respond rationally to shortages, delays, and uncertainty.
The objective should therefore be to bring this activity into a transparent, regulated framework. Expanding legal trading through licensed intermediaries, including authorized dealers and cambios, would allow foreign exchange to be traded at market-clearing rates within the formal system. This would reveal the true equilibrium price, increase recorded supply, and reduce rationing and queues.
Once legal channels provide availability at realistic prices, the incentive to transact informally diminishes. In effect, the black-market shrinks because it becomes unnecessary.
Increasing inflows and using forex more efficiently
Addressing the foreign exchange challenge also requires a collective effort to increase inflows and reduce wasteful or distortion-driven outflows. The private sector has a role to play by supporting policies that encourage the repatriation of profits, attract direct foreign investment, and enhance export capacity. At the same time, it is essential to maintain an environment that protects predictable and transparent profit repatriation, as investor confidence depends on the ability to move capital transparently and predictably. The objective is not restriction, but balance, ensuring that foreign exchange circulates efficiently within the economy while remaining attractive to investment.
Equally important is accelerating local production where it is economically viable. Reducing structural dependence on foreign currency particularly for consumption goods will take time, but targeted interventions can yield meaningful gains. At the same time, aligning prices with market conditions helps ensure that foreign exchange is allocated more efficiently across the economy.
Larger firms, especially those with export earnings and regional or international operations, should also be encouraged to become more self-sufficient in meeting their forex needs. As net earners of foreign currency, these businesses can play a stabilizing role by reducing reliance on the domestic banking system and contributing to overall market liquidity.
A call for coordinated action
The foreign exchange challenge confronting TT is now widely recognized as a national issue. Its resolution requires coordination among government, the Central Bank, and the private sector, given the complex mix of structural, institutional, and market factors involved.
While perspectives may differ on specific policy tools, there is a shared interest in restoring availability, predictability, and confidence in the forex system. What is clear is that inaction is not an option. Delaying reform will only deepen distortions and increase the eventual economic cost.
The TT Chamber of Industry and Commerce stands ready to work with all stakeholders to advance practical, evidence-based solutions. Addressing the forex challenge is not about ideology; it is about safeguarding economic resilience, supporting businesses, and creating the conditions for sustainable growth that benefit every citizen.