Government spent less than scheduled to pay debt, despite high rates

The government of Andrés Manuel López Obrador continued to allocate fewer resources than approved to the financial cost of the debt, according to data released by the Ministry of Finance and Public Credit (SHCP) from January to October of this year.

Between January and October, the government disbursed 600,161 million pesos to pay debt service, which represented a growth of 11.3% compared to the same period last year.

Even with double-digit growth and an environment where central banks have tightened their monetary policy due to high levels of inflation, the resources allocated to financial costs were 3,821 million pesos less than those approved for the period .

James Salazar, deputy director of Economic Analysis at CIBanco, explained that the lower resources allocated to servicing the debt are explained by the appreciation that the peso has shown against the dollar.

For this year, the Treasury foresees that the financial cost of the debt will be 791,463 million pesos; but given the inertia that the peso has had in recent weeks, it may be less.

inflation, pain

The high levels of inflation that have been registered in Mexico and other countries have led central banks to raise their interest rates and, therefore, that the service of the debt that has been contracted at non-fixed rates increases.

With inflation that aims to close above 8% this year, Banco de México has increased its reference interest rate.

In his last monetary policy meeting, in November, he increased it by 75 base points, to bring it to a historical level of 10.00 percent.

That is why this year the financial cost of the Mexican debt presents the highest record since the last year of the Enrique Peña Nieto government, when it increased 12.2 percent.

Broken down, the financial cost of internal credits from January to October was 405,886 million pesos, 23.2% more than a year ago, while the external debt service was 194,274 million pesos, 7.3% less than a year ago.

pressure for finance

The financial cost of the debt is one of the great pressures for public finances, since year after year it continues to increase and leaves fewer resources to make public policies and allocate them to other spending needs, such as education or health.

For the following year, the Treasury projects that the financial cost will be 1.07 trillion pesos, which represents an increase of 30% compared to what was approved for 2022.

Thus, the financial cost of the debt would be located at 3.4% of the Gross Domestic Product (GDP) in 2023, which represents an increase compared to what was projected for this year, of 2.7% of GDP. It would become its highest level since 1996, when it stood at 3.5 percent.

“The behavior of the financial cost of the budgetary public debt as a proportion of GDP for 2023 is influenced by various factors, such as the following: i) the level of interest rates; ii) the exchange rate; iii) the stock of existing debt; iv) the expected growth of the economy, and v) the new indebtedness that is contracted during said exercise”, explained the dependency.

The government of López Obrador considered that the debt portfolio has been adequately managed both in the local and foreign markets, which has made it possible to “keep the sensitivity of the financial cost limited” to the increase in interest rates.

“In 2023, the search for alternatives that allow the debt portfolio to be in a strengthened and sustainable position, both in the short and medium terms, will continue, despite the environment of volatility in interest rates” said the Treasury.

ana.martinez@eleconomista.mx