Prospects for states in 2023, deteriorating

A lower ability to collect taxes, vulnerable federal transfers due to the economic situation and higher expenses due to high inflation are the factors that Fitch Ratings considered to project an outlook that goes from neutral to moderate in deterioration for subnationals in 2023.

The agency does not rule out that next year a series of stressed margins will be generated that could lead to a deterioration in the liquidity position of the entities and a greater recurrence in the use of short-term credits.

“Fitch also expects a moderate deterioration in debt sustainability, derived from historical increases in the cost of financing. Fitch affirms that the institutional framework of the debt in Mexico favors the sector to continue with a low level of indebtedness”, pointed out the document held by El Economista.

In terms of income, a lower capacity to increase tax collection is expected, since next year the economy will continue to be in a state of vulnerability.

It is also expected that no significant adjustments will be generated in tax rates that put pressure on the economy of families and that local governments will even grant subsidies and discounts to encourage compliance with tax payments, or to attract investment.

The rating agency projects that the effect on the collection of municipalities by Predial and real estate purchase and sale operations will be neutral. The capital gain achieved in the properties, when incorporating the increase in the price level registered throughout 2022, could represent a higher taxable base.

Despite the fact that lower collection is projected, one of the points that could present a moderate improvement is that of the taxes related to the fees for public services, for example, with those related to the registration of motor vehicles, as well as those of collection of garbage, public lighting, construction licenses and business operation.

“In addition, the application of the collection of both duties and taxes related to environmental care will gain greater relevance,” the agency stated.

In terms of federalized spending, Fitch Ratings explained that federal participations (resources freely available) would increase 19.6%, although this will depend on participatory federal revenue that, like local revenue, could be reduced due to lower-than-estimated economic growth.

On the other hand, in expenses, the wages and salaries of the subnational public sector will put pressure on local public finances, as a result of the inflationary effect suffered in 2022 and which will be the subject of negotiations in 2023, particularly in the education, health and security sectors. public.

Ratings

Of the 128 entities that Fitch rates, as of November 2022, the long-term ratings on the national scale showed a concentration in category A (31.5%) and with a mainly stable credit outlook (79.5%).

“The trend of the rating perspectives showed a positive net balance (BN) in 2020 and 2021, which has been reversed so far in 2022, registering a negative BN of -3%, reflecting a higher percentage of entities with a negative perspective than those that present a positive one”, details the publication.

Although a neutral outlook is expected with moderate deterioration in the sector, Fitch does not consider that the portfolio’s ratings will undergo a substantial change in their composition.

estados@eleconomista.mx