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News Article

Banxico Could Have Surplus of MX$500 Billion at End of Year

By Peter Appleby | Wed, 07/15/2020 - 14:30

Banxico looks set to receive a welcome financial bonus that could help Mexico’s financial recovery. According to an El Economista interview with National Committee President of the Mexican Institute of Finance Executives (IMEF) Gabriel Casillas, the volatility of exchange rates due to market conditions could see Banxico have a surplus of MX$500 billion (US$22.37 billion) at the end of the year.

"We still do not know how much it will be because we do not know what the exchange rate will be at the end of this year, but assuming that it ends at current levels of between MX$22 or MX$22.50 pesos per dollar, we could be talking about a surplus close to MX$500 billion (US$22.37 billion) pesos," said Casillas to El Economista.

According to the IMEF president, Banxico would likely return a portion of this fund to the bank to reestablish its reserves and to protect the institution ahead of potential new outbreaks, before passing the remaining amount to the Ministry of Finance. A minimum of 70 percent of that remaining capital “must be used for the amortization of the federal government’s public debt contracted in previous fiscal years or reducing the amount of financing necessary to cover the budget deficit,” as set out in the Federal Budget and Fiscal Responsibility Law, reports El Economista.

If it arrives, this windfall will be ploughed into bridging the chasm that is opening between the country’s fiscal budget and the support measures the country requires. As reported by Mexico Business News earlier this week, experts said the country’s pre-budget income had fallen by 23.1 percent in April and May and, with the slight recovery that is predicted for the rest of the year, will end with an accumulated annual loss of 3.1 percent.

Likewise, Banxico has formally predicted the national GDP will fall by 8.8 percent and informally suggested it could increase to “double digits.” Though IMSS has put job loss figures in the last four months at 1,113,677, Banxico stated that in April alone, 12.4 million jobs were lost. INEGI, meanwhile, said that industrial production had dropped 29.63 percent in May 2020 in comparison to May 2019 and that the Monthly Indicator of Industrial Activity was at just 71.79 points, “its lowest level since November 1995.”

Clearly, any additional cash will be a welcome contribution to the nation’s financial position.

Peter Appleby Peter Appleby Journalist and Industry Analyst