The public debt hoax

In one more of his rhetorical outings, President López Obrador boasted on December 28 of a transaction that had been carried out by the Ministry of Finance and Public Credit to prepay debt with multilateral organizations. Faithful to his custom of giving partial details and making comparisons, he said proudly, “I am no longer thinking only about how to end —which I am sure we will end very well—, but how to leave the next government slack.(…) We have already done a debt restructuring so that in 2025, the government that arrives pays half of the interest on the debt of what we paid when we entered the government”.

However, just by taking a look at the reports of the SHCP to the Congress of the Union, I am referring specifically to the monthly reports entitled “Information on Public Finances and Public Debt”, one can realize that what the president presumed was not it is clearly embedded in the data reported by the tax authority on the cost of government debt, both internal and external.

For example, in the period January-November 2018, the total cost of the government’s internal debt was 232 thousand 617 million pesos, while in the period January-November 2022, the total cost of debt reported by SHCP it was 393 thousand 302 million pesos, 69 percent more than in the last eleven months of the previous government. Regarding the external debt, the cost for the period January-November 2018 was 3 thousand 735 million dollars, while for the period January-November 2022, that cost was located at 4 thousand 737 million dollars, 27 percent more than four years ago.

So the cost of the internal debt, like the cost of the external debt, has increased substantially in these four years of government, and it will hardly be reduced significantly. It may be true that the government has managed to reduce the amount of interest to be paid for a certain amount of external debt that was linked to certain bonds issued a few years ago, but it is a reduction in the margin, which will hardly alter the trend that leads to the cost of the Mexican government’s debt, especially in the context of the higher interest rates that are now prevailing and that will be maintained for at least all of this year and part of the next.

On the other hand, in those same monthly reports from SHCP it is also possible to verify the evolution of the debt balance, in this case the total net debt, which includes internal and external debt. As of November 30, 2018, that is, when the previous administration ended, the balance was 389 thousand 512 million dollars. As of November 30, 2022, the balance of the total net debt was 570 thousand 942 million dollars. In other words, in these four years of the 4T government, another 181,430 million dollars have been added to the total net debt balance, almost half the balance that was registered at the time President López Obrador took office.

Taking into account, on the one hand, that this administration shied away from the political cost of promoting a deep fiscal reform that would provide greater peace of mind about the future flow of income from the federal government, while at the same time better distributing the burdens for taxpayers, progressively of course , and the evolution of the total net debt balance and the cost of servicing it, on the other, the president’s statement that he is looking for “how to leave the next government slack” not only sounds like a bad joke, but a mere I deceive the Mexicans.

*The author is an economist.

Twitter: @GerardoFloresR