Financial cost of debt to November increased 12.3% annual

At the end of the eleventh month of 2022, the federal government paid a real 12.3% more than in the same period of 2021, for the financial cost of the debt, disbursing 636,203 million pesos, according to the Public Finance and Debt Report Public, prepared by the Ministry of Finance and Public Credit (SHCP).

The figure for the first 11 months of 2022 contrasts with what was seen in the same period of 2021, when the federal government paid 525,206 million pesos, which represented 37,643 million pesos less than the estimate for that period.

James Salazar, CIBanco’s deputy director of economic analysis, commented to El Economista that the greater expense in the financial cost of the debt is a consequence of the increases in interest rates by the United States Federal Reserve (Fed) and the Bank of Mexico (Banxico).

“What happened is that, in principle, interest rate hikes have been accumulating to a greater extent. In November, the continuous increases made by the Fed and Banxico were more significant in terms of magnitude and it is very likely that something similar will happen in December,” said Salazar.

Exceeds what is projected

For the first 11 months of the year, the government had planned to allocate 632,037 million pesos to interest payments, that is, 4,166 million pesos less than the 636,203 million pesos that were disbursed.

The last time the federal government overpaid was in March 2022 when it allocated an additional 3,263 million pesos. In other words, the data as of November of last year broke a seven-month trend, paying less than expected on the debt.

The Governing Board of Banco de México, in its last monetary policy meeting in 2022, increased the reference interest rate by 50 base points to place it at 10.5 percent. The decision broke with four consecutive increases of 75 basis points.

While the United States Federal Reserve closed last year with its interest rate in a range of 4.25-4.50%, after stringing eight eighth increases.

Analysts in Mexico have projected that Banxico’s interest rate will be around 11% this year. For its part, the US central bank expects the rate to exceed 5 percent.

The CIBanco analyst mentioned that at the beginning of 2023 the federal government will surely pay more than what was programmed because with the estimates made by the Treasury in the Economic Policy Criteria they have fallen short in interest rate levels.

“Banxico and the Fed, at least in the first quarter, have plans to increase their interest rates. Maybe they will pause at a certain moment, but they will leave the rate at maximum levels and this will put pressure on the financial cost,” said Salazar.

Financial cost of 1.07 bdp

For this year, the Ministry of Finance has projected that the financial cost of the debt will be 1.07 trillion pesos, which represents an increase of 30% compared to what was approved for 2022, which would be located at 3.4% of the Product Gross Domestic (GDP), greater than 2.7% estimated GDP for 2022.

santiago.renteria@eleconomista.mx