IMF Extends Mexico’s Credit Line for Two YearsBy Emilio Aristegui | Tue, 11/23/2021 - 11:09
The International Monetary Fund extended Mexico’s credit line for two years, as the country shows signs of stability regarding its economy and medium-term inflation policies.
“The Executive Board of the International Monetary Fund (IMF) renewed the Flexible Credit Line (FCL) for Mexico for two more years, which constitutes recognition of the soundness of the institutional framework for macroeconomic policies,” announced the Ministry of Finance and Public Credit (SHCP) and the Bank of Mexico (Banxico) via a press release. The FCL is a precautionary instrument that strengthens the reserve of international assets and assists governments to preserve economic and financial stability.
The extension recognizes Mexico’s compliance with IMF’s qualification criteria, giving the country availability to operate all of FCL’s resources, according to the IMF Board of Executive Directors. IMF’s evaluation highlights that Mexico successfully maintained macroeconomic, fiscal and financial stability considering the complexity of the country’s economic context. Medium term anchoring of inflation has been deemed successful, with the credibility and independence of Banxico backing the strategy. The soundness of public finances, the projected sustainability of the debt, the solid legal budget structure and the strength of the Mexican financial system also played a major role in the IMF’s decision to extend the Credit Line.
“Considering the balance of external risks, the strength of the institutional framework of economic policies and the commitment to maintain economic and financial stability, Mexican authorities decided to continue with the gradual and orderly exit strategy from the FCL, which began in 2018. Consequently, the Foreign Exchange Commission authorized the request for a new FCL for our country for two more years for an amount of access equivalent to approximately US$50 billion, which is US$35 billion in Special Drawing Rights,” reads the SHCP press release.
The Foreign Exchange Commission will evaluate continuously Mexico’s risk scenario and level access during one year. The LCF will grant Mexico insurance and stability, according to an IMF press release. Current external risks the country faces include renewed waves of COVID-19, international financial volatility, a rise in inflation expectations in advanced economies and faster-than-expected normalization of monetary policies. These events could lead to yields, risk premia and capital outflows from the country.