The Mexican government’s debt is stable and does not cause concern to the International Monetary Fund (IMF).
A debt level of 61% of the Gross Domestic Product (GDP) as the one projected by the IMF for Mexico during the next five years is essentially the photo that one would expect for one of the very few countries that have managed to maintain the Flexible Credit Line (LCF) for 10 years, said the deputy director of Fiscal Affairs of the IMF, Paolo Mauro.
The LCF guarantees dollars to use when the borrower decides and without any conditionality. Only five countries in the world have had it: Chile, Colombia, Mexico, Peru and Poland. And only Mexico has had the strict financial stability requirements to maintain it for a decade, he argued.
Interviewed by El Economista explained that even if expectations for government debt show variations of one or two points of GDP in the coming years, they will be fluctuating around the same number. They are clearly sustainable and stable fiscal and debt conditions, he stressed.
Regarding the low stimulus granted by the Mexican government in the shock of the pandemic, he considered that this strategy opens today to Mexico a fiscal space that would allow it to direct greater support in the recovery. Resources that can strengthen the health and education sectors.
In this sense, he commented that Pemex’s financial situation is diverting public resources from investments that can be much more productive.
He referred to the preliminary conclusions of the Expert Mission that reviewed the country’s economic situation to highlight that it would be important to postpone refining projects while the economy finishes recovering. Likewise, it will be desirable for them to have private partners to improve processes and it was noted the relevance of strengthening Pemex’s corporate governance.
A reform for the medium term
From Washington, he recommended that once economic activity returns to normal, it will be important to apply a reform to the tax system to strengthen public revenues.
“Governments can indicate a commitment to sustainability while addressing the current crisis in a number of ways: for example, through the implementation of structural fiscal reforms: a tax or benefit reform or pensions, or the adoption of budgetary rules and regulations. the creation of institutions aimed at promoting fiscal prudence ”.
This is a general suggestion for all the countries of the world, not only for Mexico, he added. The reference of three to five years to implement the changes in the medium term is based on international experience.
The official also commented on the opportune moment to rebuild the savings or buffers. “It is too early to rebuild them. We must take small steps, address the health situation. To facilitate that the governments that can, continue supporting to strengthen the recovery, and then that they develop strategies to apply tax reforms ”.
A stable return
When talking about the return that Mexico is offering investors, he stated that it does not reflect in a particular way a greater risk compared to its emerging peers.
I do not have any evidence that shows an abrupt change in the perception of risk that the market has about Mexico. At this time, the return that Mexico offers is not so different from what they paid before the pandemic.
He recalled that the return offered by the country also reflects the impact of inflation, and it cannot be lost sight of the fact that in September it was at 6 percent levels.
However, even considering the real rate offered by Mexico, there is no significant change in the perception of investors.