The appreciation of the peso against the dollar in recent months helped the debt, in its broadest measure, show a significant reduction in the first quarter of the year, according to an analysis by the rating agency HR Ratings.
According to the estimates of the rating agency, the Historical Balance of the Public Sector Borrowing Requirements (SHRFSP), the debt in its broadest measure, decreased to 47.8% as of March of last year.
The data is lower than that observed at the end of 2022, of 49.8 percent.
“Despite the strong deficit, the broadest metric of federal public debt, the SHRFSP experienced a decline vs. its closure of 2022. This was due to the strong appreciation of the peso against the dollar during the first quarter, which reduced the peso value of the debt denominated in foreign currency,” he explained.
In the first three months of 2023, the peso advanced 7.63%, equivalent to 1.49 units per dollar, to end with a price of 18.0201 pesos. In addition, it was the most appreciated currency against the US currency.
Another reason why debt, in its broadest measure, managed to decrease in the first quarter was due to the growth of the Gross Domestic Product (GDP) in the period.
According to HR Ratings estimates, GDP went from 28.6 trillion pesos in the last quarter of 2022 to 29.3 trillion pesos in the first three months of this year.
According to the data disclosed by the Ministry of Finance and Public Credit (SHCP), the SHRFSP stood at 13.9 trillion pesos in the third quarter of this year, a decrease of 0.8% compared to the same period of the previous year.
In the current administration, an effort was made to reduce the SHRFSP below 50% of GDP; however, the arrival of the Covid-19 pandemic in 2020, and the global economic crisis, made it difficult to achieve the objective.
“We have not wanted to take the debt because in previous periods, of the two previous governments (…) They increased the debt by 15 points of the Gross Domestic Product (GDP),” said Rogelio Ramírez de la O, secretary of Tax authorities.
The latest Treasury estimates indicate that the debt will be located, at the end of this year, at a level of 49.9% of GDP, while for the following year it would remain the same.
Financial cost presses
On the other hand, HR Ratings indicated that in the first quarter of the year, the financial cost of the debt put pressure on public spending, given the increases in interest rates by central banks worldwide.
In the first three months of the year, the debt service presented an expense of 258,296 million pesos, which represented an annual growth of 57.2 percent.
On other occasions, the Ministry of Finance indicated that the financial cost does not present any risk to public finances, even when it will also be higher than what was approved.
“The results achieved in terms of public finances have not been compromised by the increase observed in interest rates at the international level. The active liability management policy implemented by the SHCP has allowed the pressures due to the increase in financial costs to be contained and that they do not represent a risk for public finances,” said the agency.
In accordance with what is stated in the 2024 Precriteria, the debt service will be 21,226 million pesos higher than what was approved in the 2023 Federation Expenditure Budget (PEF) due to the increase in interest rates to try to combat the inflation.
With this, the financial cost of the debt will be 1 trillion 100.313 million pesos this year.
The dependency indicated that the increase in debt service compares favorably with respect to other similar episodes, where interest rates increased substantially.
The financial cost of the debt is one of the great pressures of public spending, along with the resources that must be allocated to the payment of pensions.
Authorities of the Public Credit Unit of the Ministry of Finance have said that one aspect that helped a lot to improve debt management is that during 2020 migration from external debt to internal debt was made.
Thus, at the end of March, the debt contracted in local currency amounts to a balance of 10.09 trillion pesos, that is, it represents 72% of the country’s total indebtedness, while the external debt at the end of the first quarter of 2023 stood at 3.89 trillions of pesos, which represents 28% of the total balance of the SHRFSP.
A few months ago when the Secretary of Finance attended the morning conference, he commented that at the beginning of the government the debt represented 45% of GDP, while two administrations ago it represented 30 percent.
