Mexico should use a windfall from its central bank to further tighten its belt this year as it suffers from a drop in revenue from lower oil prices, a senior official of the International Monetary Fund said. Earlier this month, the Finance Ministry received a transfer of 239 billion Mexican pesos ($13.6 billion) from the central bank from part of the gains made on dollar reserves in 2015 because of a sharp currency depreciation.
Mexico had already announced budget cuts for this year and has said it will further dial back spending next year since a global slump in oil prices has crimped government income from crude sales by state oil company Pemex. The ministry said it would use the transfer from the central bank to lower 2016 public sector borrowing requirements, the broadest definition of the deficit, but it has not yet specified by how much it could cut its deficit target of 3.5 percent of gross domestic product for 2016.
A fiscal responsibility law requires the government to use 70 percent of the surplus to reduce debt, and economists estimate the surplus could allow the government to lower its fiscal target by nearly 1 percent of GDP. Alejandro Werner, director of the IMF's Western Hemisphere department, said the deficit should fall in proportion to the size of the transfer.
"Given that the government is getting this additional revenue, the orthodox way to do it, given the new changes in the fiscal responsibility law, is that they have to reduce debt," Werner told Reuters after an event in Mexico City. The central bank transfer "should be reflected in a reduction in the deficit target," he said. Werner's view was in line with comments made by Mexico's central bank chief.
Central Bank Governor Agustin Carstens told reporters on April 12 following Senate testimony that the transfer was equal to about 1.25 to 1.3 percent of GDP, and since 70 percent should pay down debt, the deficit target should fall "in proportion." Overall, Werner lauded the Mexican government's efforts to rein in the fiscal deficit, which grew to 4.6 percent of GDP in 2014. It fell to 4.1 percent in 2015, according to the Finance Ministry. In early April, before the central bank's transfer, the government reiterated its 3.5 percent deficit target for 2016 and said the deficit would fall to 3.0 percent of GDP in 2017.