Barbados and Trinidad United States-dollar shortage impacts PriceSmart's operationsWednesday, January 20, 2021
BY DAVID ROSE
WITH COVID-19 severely impacting the tourism and energy markets, Barbados and Trinidad and Tobago have been facing a shortage of United States dollars (USD) as the pandemic has made the tradable currency harder to source in the smaller Caribbean states.
The situation has started to limit imports into the Trinidadian market with the issue in August further exasperated. This is at a time when ratings agency Moody's downgraded Trinidad's debt to Ba1, which is below investment grade, while S&P has maintained the country's debt rating just above junk at BBB- on a stable outlook.
Moody's rating reflects the slow pace of economic growth which included five consecutive economic contractions and dependence on the oil and gas sector. Some shipping companies in the twin-island republic have also begun to only accept USD for freight charges as of this month while other businesses struggle to source USD for their operations.
“However, I would like to note that in Trinidad, although sales were very strong during their quarter, we are continuing to experience challenges in converting TTD to USD. As a result, during the first quarter, we began limiting shipment of goods from the US to Trinidad. We are already seeing the impact in our December sales. We expect to continue limiting shipments during the fiscal quarter of 2021. Therefore, our Trinidad clubs are not carrying their usual mix of quantity and merchandise. We believe this negative reduction in merchandise will negatively impact sales in Trinidad in our second fiscal quarter by an estimated US $14-18 million. We are also seeking to reduce our net use of USD in Trinidad by shifting the purchases of certain goods to local sources and seeking the exports on locally sourced items,” said Pricesmart Executive Vice-President and Chief Financial Officer Michael McCleary in the company's first-quarter conference call last week.
Pricesmart has four clubs in Trinidad and Tobago which currently has USD-denominated liabilities totalling US $14.4 million ($2.06 billion) and TTD worth US $100.5 million which was up by US $20.9 million since August 31, 2020. One strategy the CFO outlined was exporting some local Trinidadian products to other markets and earning USD which could be used to settle liabilities for the subsidiary. This is the current focus until the country begins to start earning more income from the energy markets which act as the source for most of Trinidad's USD.
The Barbados subsidiary has begun to face a similar level in converting the local Barbadian dollar (BBD) to USD. The BBD is set up under a fixed-peg currency arrangement whereby BBD exchange rate is fixed to the USD. Pricesmart Barbados had BBD equivalent of US $12.8 million at the end of November which represented the single club which operates in the country. S&P has maintained its stable outlook on Barbados which has a credit rating of B-.
Pricesmart's Caribbean segment had a 10 per cent growth in net merchandise sales (NMS) to US $254.6 million ($36.3 billion) which made up 30.4 per cent of the group's NMS. Operating income for the segment was up by 83 per cent to US$21.6 million with net income attributable to shareholders up by 66 per cent to US $17.2 million. Total revenue for Pricesmart grew by 8 per cent to US $877.4 million while net income attributable to shareholders rose by 41 per cent to US $27.7 million as more customers flock to the company's warehouses for the necessary goods.
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