Mexico Fifth for Highest Rise in National Debt

The COVID-19 pandemic and subsequent economic outfall has resulted in a growing national debt that has positioned Mexico fifth among emerging economies for the highest rise in national debt and third within Latin America.

Figures from the International Institute of Finance (IIF) reported in El Economista state that “Mexico's obligations increased 12 percent annually with respect to GDP” in 1Q20. In May alone, debt increased by 4.7 percent and reached an equivalent value of 49.5 percent of Mexico’s GDP, as reported by Mexico Business Publishing.

Only Chile and Brazil have seen their national debt increase at a higher rate. Brazil’s national debt has risen 20 percent and places it third in the world behind second-place China with 21 percent, while Chile’s 30 percent debt increase places it firmly at the top of this unenvious list.

According to the IIF’s report on emerging economies’ debt increases, the rising debt rate seen by Mexico and other nations including South Africa (fourth place), Saudi Arabia (sixth place) and Russia (eighth place) are a result of “the strong depreciation of emerging currencies against the dollar and a strong contraction in GDP.”

The financial sector was among those with the highest debt burden, carrying a debt equivalent to 27.7 percent of Mexico’s GDP, a full 2 percent higher than the rate recorded in March of last year.

Outside of debt, the financial sector has suffered a 28.7 percent fall shown from BMV stock values, reports El Financiero. The tumbling values were caused by “the anticipated deterioration in creditor portfolios and profits,” as the economy has ground to a halt due to COVID-19.

Mexico’s debt problems have grown despite the austerity measures that the government has enforced. Financial support for SMEs is still lagging and job losses are rising. While IMSS has put job losses in the formal sector at 1,113,677 in the last four months, Banxico suggests the number of jobs lost could be as high as 12 million. These losses will hit government revenues and cause problems for the government’s overall budget. As reported by MBN earlier this month, the government’s pre-budget income fell by 19 percent in April.