Mexican Debt to Surpass 60 Percent of the GDP in Six Years: IMFBy Jorge Ramos Zwanziger | Wed, 04/07/2021 - 19:18
According to IMF, Mexico’s debt could increase to over 60 percent of the GDP between 2021 and 2026, reported El Economista. The estimation takes into account debt levels from the federal government, state governments and local governments. In 2020, Mexico’s debt reached 52.4 percent of the Mexican GDP, a historic number that is 7 percentage points larger than 2019’s 45.1 percent, reported Expansión.
Debt levels around the world have increased following the pandemic, particularly due to the many healthcare measures countries took to deal with COVID-19. In Mexico, the debt increase is also caused by an 8.5 percent contraction in the economy, according to previous figures from INEGI. This is the largest drop in GDP since the Great Depression, reports Forbes Mexico.
Can the Country Be Helped?
On Wednesday, Mexico and Argentina urged IMF and the World Bank to create new mechanisms for debt relief for middle-income countries, arguing that a measure like this could prevent a financial crisis derived from the COVID-19 pandemic, reports Forbes Mexico. Both countries also called for the creation of a specific fund to support middle-income countries to restructure or improve their finances, reports Nasdaq. This call for help was made through a joint statement during the Spring Meetings organized by IMF and World Bank. The countries argued that there should be more access to IMF reserves known as Special Drawing Rights, which provide liquidity and supplement official reserves, reports Nasdaq. "This could prevent the health and economic crisis from becoming a debt crisis in the medium-term, allowing a vast majority of the world's population not to transition into the forgotten majority," reads the joint statement from Argentina and Mexico, published on Twitter by Arturo Herrera, Deputy Minister of Finance and Public Credit of Mexico.
“The World Bank estimates that 120 million people fell back into extreme poverty by the end of 2020. It is expected that most of the new extremely poor in the world will precisely come from these countries, accounting for 94 million,” reads the joint statement.
What About Economic Recovery?
The Ministry of Finance and Public Credit estimates an economic growth of 4.6 percent for 2021, which could be larger if vaccination plans run smoothly and there is an acceleration in the reopening of the country, reported el Financiero. IMF was even more optimistic, forecasting a GDP increase of 5 percent, reports El Economista. Gita Gopinath, Economic Counselor and Director of Economic Investigation at IMF, is also taking into account the positive impact of foreign demand, influenced mainly by the US. To Gopinath, Mexico and Canada will benefit from the fiscal stimuli the US approved and Mexico might see a recovery through 2Q21, which will also be pushed forward by the country’s vaccination programs, reports El Economista. According to El País, however, analysts at the Bank of America are beginning to see the "decoupling" of the Mexican and the US economy, which they believe might limit the spillover effect of the US economy on its neighbor.