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News Article

Government Will Not Increase Debt to Face COVID-19

By Peter Appleby | Wed, 07/01/2020 - 09:11

The government will stick to its strategy of keeping public debt to a minimum while mitigating the worst effects of COVID-19, Deputy Minister of Finance Gabriel Yorio has confirmed, according to El Economista.

During a webinar on regulation in the finance and housing sector, Yorio explained that the López Obrador administration would not look for loans to restart the economy following the devastation caused by the pandemic.

President López Obrador has said that the country’s economic crisis will claim 1 million jobs, while Banxico and the International Monetary Fund have forecast Mexico’s economy will contract by up to 8.8 percent and 10.5 percent respectively. Nevertheless, the minister said that the government was unwilling to make future generations pay for today’s problems. Instead, Mexico will use its own finances to ease the hardship millions will face.

“The first decision that was made is not to pass the cost of this shock to future generations. Therefore, we are not using debt, we are trying to work within the fiscal perimeter that the 2020 Economic Package gives us,” Yorio said.

Mexico’s national debt will grow substantially in 2020, however. Reports by BBVA and Citibanamex cited in El Universal suggest that the national debt, which stood at 44.9 percent of the country’s GDP in 2018, would grow by twice as much in 2020 alone as it did in the entirety of former President Enrique Peña Nieto’s sexenio. In 2019, the economy shrank by 0.3 percent in contrast to the 2 percent growth that the administration had forecast.

To counter the debt’s growth, which started alarm bells ringing far before President López Obrador came to power, the MORENA leader has gone with a policy of austerity, slashing ministry and institution budgets by up to 75 percent, as well as reducing ministers’ wages.

But the economic cost of the pandemic has obliterated any headway the government could have made in reducing debt. Such will be the cost of COVID-19 that the country’s National Council for the Evaluation of Social Development Policy predicts it will push almost 10 million more Mexicans into poverty. This will increase the figure from 52.4 million to 62.2 million people from a population of 127 million.

The government’s decision to not roll out financial aid to the many thousands of MSMEs that in 2015 generated 72 percent of the jobs in Mexico and contributed 52 percent of the country’s GDP was roundly criticized. While some support has now been given out, the situation for these vital group of employers remains stark. According to EGADE Business School, part of Tecnológico de Monterrey, the virus could push half of Mexico’s MSMEs to bankruptcy and closure.

Photo by:   Steve Johnson
Peter Appleby Peter Appleby Journalist and Industry Analyst