National Debt Could Grow to Historic Levels: BBVA, CitiBanamex

COVID-19 is on course to deliver an unwanted financial landmark to Mexico’s door, say BBVA and CitiBanamex. The two international financial institutions have forecast that the growth rate of the country’s debt just this year could grow to double the rate seen during the entire term of former president Enrique Peña Nieto, El Universal reports.

The measures that the MORENA government have taken to reduce national debt growth, including the much-criticized austerity cuts that have seen funding for leading public universities like CIDE cut and a refusal to support the country’s MSMEs, which provide 72 percent of Mexico’s jobs and up to 52 percent of its GDP, will prove to have been a waste if predictions are correct.

According to data from the Ministry for Finance, Mexican national debt grew from 37.2 percent of the country’s GDP to 44.9 percent during the presidency of Enrique Peña Nieto, between 2012 and 2018.

BBVA suggests that if the Mexican economy experiences a worst-case scenario and contracts by 12 percent, then debt could move from the 44.7 percent of GDP level it was at in 2019 to 59.2 percent in 2020. Meanwhile, CitiBanamex predicts that low oil prices, lower oil production in Mexico and poor macroeconomic performance aggravated by COVID-19 will see the national debt percentage of GDP reach 65.6 percent in 2020, El Universal explains.

As reported by Mexico Business News last month, Deputy Governor of Banxico Jonathan Heath explained that the government is taking an approach that may deepen the immediate economic impact of the virus but will also allow the country to get out of the depression more quickly. “What the President is doing is changing the problem. Instead of having a short recession and then an immense headache with an unplayable debt, he is betting on having a more profound and complicated recession. But once we are out, we will not have the same headache that other countries will have,” Heath said in a podcast interview.

Minister of Finance Arturo Herrera said yesterday that the Mexican economy may have contracted by 17 percent during April and little less during May, reports El Economista. The lockdown measures that the government enforced in an attempt to flatten the curve of COVID-19’s spread led to the suspension of work across industries, resulting in a 29.6 percent reduction in industrial activity. This is the steepest drop INEGI has recorded. The factors behind this historical drop off were the 38.4 percent fall in construction and 35.5 percent drop in manufacturing, says Forbes.