Trinidad and Tobago Foreign Reserves Crisis

Over the past two years, Trinidad and Tobago (T&T) has experienced a significant and accelerating decline in its foreign exchange reserves—falling from US$6.33 billion in October 2023 to just US$4.61 billion by August 2025, a sharp 27% drop (or US$1.72 billion). This erosion threatens the country’s macroeconomic stability and signals growing pressure on its balance of payments.

Timeline of the Reserve Decline

Phase 1: Gradual Erosion (Oct 2023 – Apr 2025)

• Reserves fell by US$1.04 billion (–16.4%), from US$6.33B to US$5.29B.

• Import cover dropped from 8.0 months to 6.2 months.

• Key drivers:Weak energy revenues due to lower LNG exports and production shortfalls.High foreign exchange (FX) demand from importers and profit repatriations.Elevated fiscal spending on subsidies, public wages, and election-related transfers.

• The Central Bank increasingly intervened to support the TT dollar, drawing down reserves.

Phase 2: Sharp Acceleration Post-Government Transition (May – Aug 2025)

• Following the April 28, 2025 change in administration, reserves plunged US$480 million in just four months (–9.4%).

• Import cover fell further to 5.4 months—still above the IMF’s 3-month safety threshold but trending dangerously downward.

• Contributing factors:Release of pent-up private-sector FX demand.Lag in implementing promised fiscal consolidation measures.Market uncertainty triggering precautionary capital outflows.

Why Are Reserves Falling? The Macroeconomic Imbalance

At its core, T&T’s reserve crisis stems from a worsening external imbalance: exports (X) are not keeping pace with imports (M), leading to a persistent current account deficit.

Using the standard GDP identity: GDP = C + I + G + (X – M)

International development banks simplify this into two components:

• Internal balance: A = C + I + G (domestic absorption)

• External balance: X – M (net exports)

When X – M declines, the only sustainable way to restore equilibrium is to reduce domestic absorption (A)—primarily by cutting government spending (G), since it’s the most directly controllable lever.

What Comes Next? Likely Policy Responses

If the current trajectory continues, Trinidad and Tobago may soon need to seek external financing from international development banks. However, such support typically comes with structural adjustment conditions, including:

• Reduction in government expenditure (e.g., cuts to subsidies and public sector wages)

• Privatization of state-owned enterprises

• Exchange rate adjustments (potential devaluation of the TT dollar to boost export competitiveness)

• Fiscal consolidation and tax reforms

• Measures to curb non-essential imports and stimulate export-led growth

These are classic neoliberal stabilization policies aimed at rebalancing the economy by aligning domestic demand with foreign exchange availability.

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