Gasoline Subsidies Decrease

The Ministry of Finance published the tax subsidies on fuels for the week from November 12 to November 18, 2022. The subsidies for Magna and Premium gasoline decreased to 89.92 percent. Diesel subsidies remain at 100 percent.

The amounts of tax stimuli are MX$4.93/l (US$0.25/l) for gasoline with a level below 91 octane, MX$3.81/l (US$0.20/l) for gasoline with a level equal to or above 91 octane and MX$6.03/l for diesel (US$0.30/l). With the full tax stimuli, fuel station customers will be exempted from paying the Special Tax on Production and Services (IEPS). Fuel prices have started to gradually decrease globally to levels before the war in Ukraine. Therefore, Mexico’s government has gradually decreased subsidies.

In October, the finance ministry announced modifications to the methodology for determining the fiscal stimuli regarding the special tax on production and services (IEPS) applicable to fuels like gasoline or diesel. The ministry increased the amount paid for IEPS considering the rising inflation.

Earlier in November, the Executive Board of the International Monetary Fund (IMF) reported on the financial situation of Mexico. While the board concluded that the country stands on stable financial footing, it also remarked on the need for the reduction of gas emissions. Regarding Mexican subsidy policies, the IMF had previously advised on the adversity of using tax subsidies for fuels to damper rising prices. “[Mexico] has largely used untargeted subsidies to mitigate cost-of-living increases, offsetting the windfall in oil revenue streams,” stated the report. According to the IMF, the measure did soften fuel prices, which mitigated the pressure of inflation on consumers. However, it took its toll on the public budget. Therefore, the IMF recommended that when fuel prices rise again, the government should choose measures focused on protecting other areas. “Contingency plans should be prepared for a rapid economic policy response if risks materialize. It would be important to increase fiscal buffers in the short term and reform the institutional framework to achieve greater flexibility in the long term,” said the IMF.

The IMF also highlighted that the inflation Mexico faced went from 3 percent by the end of 2020 to 8.7percent by September 2022, which led to the modification of fuel subsidies. The fund projects inflation to stabilize by the end of 2022 and to slowly decrease, along with a slowdown in the country’s economic growth amid a shrinking global market outlook. Mexico’s Ministry of Finance reported the possibility that a similar scenario of rising inflation plays out in 2023. Therefore, the ministry may modify tax subsidies “to strengthen actions and protect the purchasing power of the population,” said Gabriel Yorio, Deputy Minister of Finance. Yorio also mentioned that if oil prices fall, the government has an oil hedge to shield the budget.