National Debt Rises Despite Austerity

Despite the hard austerity stance taken by the López Obrador government, national debt is climbing. In fact, it has just hit its highest rate in 11 years, says El Financiero. The cost-cutting measures taken by the government have done little to dent the mounting national debt, while forecasts from both ECLAC and Mexico’s National Chamber of the Transformation Industry, saying half a million businesses and the employment they provide will be lost to COVID-19, offer more pessimism.

In May, the country’s national debt rose 4.7 percent to reach 49.5 percent of GDP. According to the Ministry of Finance, debt is at its highest percentage since the 2009 recession. Net debt now stands at MX$12.48 trillion (US$560 billion) pesos. PEMEX, the national oil company that is heavily-backed by the national government, represents some MX$2.357 trillion (US$105.2 billion) of this.

Earlier this week, Mexico Business News reported that Deputy Finance Minister Gabriel Yorio had said that the government would stick to its guns, doubling-down on its intention to not increase debt by taking loans to face the crisis.

But financial concerns are increasing as the pandemic is sticking around for longer than expected. Mexico’s COVID-19 tsar Hugo López-Gatell had originally predicted the virus would reach its peak in April. But cases are still growing and only yesterday the Ministry of Health reported 6,741 new cases. This is the highest increase Mexico has so far seen.

Job losses are mounting, too. On June 24, the president let the country know that 130,000 jobs had been lost in June alone. Previously, he stated that he expects 1 million jobs to be lost in the course of the pandemic.

The president believes that just over 2 million jobs will be created through the reactivation of the economy and well-being programs. Among these job generators will be the government’s flagship construction projects including the Mayan Train, to create 80,715 jobs; the Dos Bocas refinery, to create 72,109 jobs and the construction of Mexico City’s new airport in Santa Lucia, to create 44,150 jobs El Universal reports.

This estimate seems farfetched considering the World Bank’s forecast that Mexico’s economy will shrink by 10.5 percent and, before the crisis, only 342,077 jobs were created during all of 2019, according to IMSS’ data cited in Milenio.