The external debt of Mexico reprises his performance boost at the start of 2019, within a context of concerns and doubts about the availability of resources to finance government programs President A ndrés Manuel Lopez Obrador, and its possible implications on the rating of the country’s sovereign debt, in particular, that of Pemex.
The balance of Mexico’s gross external debt rose by 9 thousand 519 million dollars in the first quarter of 2019 alone, to reach an unprecedented figure of 456 thousand 251 million, according to the latest figures published by the Bank of Mexico.
The increase in external indebtedness presents chiaroscuros, at the same time as it helps to light some yellow spots.
The main catalyst for greater debt was the purchase of foreign debt paper issued by the Mexican government in the local market with an amount of 6 thousand 715 million dollars, which increased its balance to 115 thousand 208 million in the first quarter 2019. The growth of this type of resources was 6.19 percent compared to the last three months of last year.
“Around the world, we have approximately 14 trillion bonds with a negative yield, while the real interest rate on Mexico’s 10-year debt (nominal – inflation) has fluctuated around 4 percent. Although the country faces numerous risks, its debt remains very attractive, considering that sovereign bonds maintain a degree of investment and offer high profitability in relative terms, “said from New York, exclusively for the Financial, Diego Colman, analyst of DailyFx markets of the IG financial group.
Foreign ownership, according to international standards following the Bank of Mexico, in roles such as bonds M, Cetes, Bondes UDIBONOS and D, will be taken as external debt.
The greater growth of foreign debt resulting from the appetite of foreigners for debt paper denominated in pesos, is a sign of confidence in Mexico and is more manageable since there is greater control by part of the Mexican government, although it does not stop worrying due to the volatility that this type of resources can have.
Another aspect that also concerns concerns the increase in the indebtedness of the Federal Government and of the so-called parastatals. States two entities increased their level of debt by 2 thousand 111 and 2 thousand 185 million dollars in the first quarter of this year, which showed a growth rate of 2.20 and 2.31 percent with respect to the previous quarter in each case.
The financial requirements of both the Federal Government and Pemex can put pressure on the result of public finances in general, which can lead to the temptation to increase resources through external indebtedness, given the strategy of not doing, for the moment, a fiscal reform and keep under control the price increases in public goods and services.
The financing policy, to be sustainable, should not be left to rest only on the pillar of austerity and the fight against corruption.
“The ideal for any government is to control the growth of the debt and consolidate its obligations. However, in a less benign economic environment for Mexico, in which tax revenues have been reduced, fiscal discipline is difficult, especially if the administration is not willing to dramatically reduce its expenditures and / or cut projects that do not have much economic sense (Dos Bocas, Santa Lucia, etc.), says specialist Diego Colman.
The outlook for public finances is clouded by higher resource requirements to finance government programs and move Pemex forward, due to low economic growth, which can contribute to keeping downward pressure on revenues and lead to a degradation of the sovereign rating of the external debt and of the main productive enterprise.
The gross external debt of Mexico accounted for 36.5 percent of the total size of the economy in the first quarter of 2019 , down from 37.7 percent late 2018. However this may be due, in large part because GDP in dollars, it was favored by the recovery of the peso, which offset to a large extent the fall of 0.2 percent in productive activity at the start of the year.
Finally, it should be noted that companies in the non-financial private sector have shown a more prudent position in terms of external debt , as this item stands at 119 billion 103 million dollars at the end of the first quarter of 2019, below its historical maximum reached 125 thousand 409 million in the last quarter of 2017.