The Trinidad and Tobago Manufacturers' Association and TT Chamber of Industry of Commerce welcomed the boost to TT's foreign reserves that resulted from the International Monetary Fund (IMF)’s decision to make SDR456.5 (US$650 billion) in Special Drawing Rights (SDR) available to its member countries.
US$275 billion of that financial boost targets the most vulnerable member countries of the IMF, emerging markets and developing countries.
TT was allocated SDR450 million for 2021, a value of US$644 million.
On Tuesday, Minister of Finance Colm Imbert announced that TT's foreign reserves had been boosted by the distribution, and net foreign reserves now exceed US$7 billion.
The Finance Minister said the SDR allocation will give the Government "more flexibility to inject US dollars into the commercial banking sector for distribution to the public and to make more forex available through the EximBank to the manufacturing sector and to importers of essential goods."
On Friday, the Prime Minister further explained that the SDRs would be used to reduce borrowing and to bolster the country's recovery.
SDRs are not a loan or a fund, but an increase in global liquidity dramatically increased in 2021 to reinforce economies faltering in the face of covid19 slowdowns. It is financed by all member nations, but wealthier members support according to their financial capacities.
In a press release issued on August 2, IMF managing director Kristalina Georgieva noted, “We will also continue to engage actively with our membership to identify viable options for voluntary channelling of SDRs from wealthier to poorer and more vulnerable member countries to support their pandemic recovery and achieve resilient and sustainable growth."
This mediating hand on a delicate economic balance between national debt and revenue that's been thrown into disarray by covid19 restrictions is an important alternative to more expensive internal and external borrowing.
IMF member nations can borrow on the SDRs that form part of their reserves, and will do so at interest rates the IMF describes as "favourable," but will normally do so only to address balance-of-payments issues. Those interest rates are calculated weekly, based on a weighted average of representative interest rates paid on short-term government debt instruments.
An SDR is otherwise regarded a cost-free interest-bearing reserve asset for an IMF member nation with a corresponding long-term liability to the IMF.
SDRs have been allocated since 1970, but the 2021 distribution is historically unprecedented, eclipsing 2009's payout of SDR161.2 billion.
This boost to TT's foreign reserves isn't a licence to spend or allocate US currency wantonly. It represents a signal of confidence by the IMF in this country's capacity, as a member nation, to manage its balance of payments sensibly and effectively.
The government's recovery strategies must clearly demonstrate that capacity going forward.
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