The inaccessibility of foreign exchange is creating a black market for the currency and driving up food prices in T&T.
This was a view shared by two local economists who commented on statements made by president of the Supermarkets Association Dr Yunus Ibrahim that the base prices of imported items at local supermarkets were linked to access to the US dollar.
Ibrahim, who said the Government needed to prioritize food in terms of access to foreign exchange, said the incremental increases of goods on grocery shelves had occurred because suppliers were not getting enough currency.
He said for the past few months, the reason given by suppliers for increases has been the scarcity of the US dollar.
Ibrahim said in some cases, suppliers were forced to approach black market pricing of the dollar which currently stood at a value of $7. In other cases, suppliers were buying from a third party distributor who placed markups on the goods.
Economist Subhas Ramkhelawan, in an interview last week, said the reason prices were trending upwards was two-fold.
“First, the implementation of Vat on a wider range of food items will cause prices to increase from the perspective of the consumer.
“The second element is the currency shortage which is being experienced by importers. The amount of hard currency being supplied to the system as a whole is falling away. In the demand supply configuration, demand is greater than supply and you have a situation where a number of importers will go outside of the official system to access currency.”
He said a black market was developing for foreign currency.
In the black market the price for currency is above the authorised price.
“The black market is going to set a price that is higher than the official price and so people who have to pay will set their prices.
“For a number of players, the black market will be used to supplement what they are getting from the authorised dealer,” said Ramkhelawan.
Another economist, Vaalmikki Arjoon, said the issue of inaccessibility of foreign exchange and depreciation of foreign exchange was just one factor in driving food prices.
He said not only do businesses have to pay higher costs and levies, but they are also finding it difficult to get financing.
“Can we expect to see a continuation? In the short run we can.
“But there can be dialogue between Government and parties. Instead of waiting for the economic situation to get better, businesses should take the initiative to boost operations for themselves,” Arjoon said.
He said the Inter American Development Bank provides financing for small and medium enterprises and businesses could access financing from them.
“They need to take it on themselves rather than waiting to see how the country performs and what the administration will do.”
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Prior to last year’s election, Prime Minister Dr Keith Rowley had raised concerns about the creation of a black market for foreign currency as a result of changes made to the forex distribution by the Central Bank.
Following the election, Finance Minister Colm Imbert announced that the distribution of foreign exchange would revert to the old system and pumped $500 million into the system to clear the backlog.