The cost of debt in Mexico recorded the largest increase in eight years in January

The financial cost of Mexico’s debt registered in January the highest increase in eight years for the same month, amidst maximum levels of the Bank of Mexico’s (Banxico) interest rate.

The Ministry of Finance and Public Credit (SHCP) published its public finance report for the year’s first month.

It reported that the financial cost of public sector debt registered a 37.1% real annual increase in January, the largest increase observed for January in eight years.

In absolute terms, the cost of debt in Mexico amounted to Mex$87.997 billion, which was Mex$2.593 billion lower than programmed but higher than the interest payment observed in January 2022, Mex$59.495 million.

The increase in interest payments occurs in the context of high-interest rates observed internationally to curb the advance of inflation, which has been replicated by Banxico, which began an upward cycle in June 2021 and today has an interest rate of 11%.

The Treasury report indicates that, within the financial cost of the private sector, the interest payment of the Federal Government alone increased in January at a 69.1% real annual rate.

This variation is much higher than that observed in January of last year when the financial cost rose 26% real annual rate.

The financial cost of the Government’s public debt will exceed, for the first time, Mex$1 trillion in 2023, and the restrictive tone of Banxico’s monetary policy could raise the cost above what was budgeted, according to the fiscal risks calculated by the Ministry of Finance and budget experts.

The government projected that the interest rate would be 8.5% at the close of 2023.

However, the benchmark reached 11% in February, implying a difference of 250 basis points between what was approved in the Economic Package and the central bank’s monetary stance.

The Ministry of Finance estimates that an increase of 100 basis points in the interest rate increases by Mex$30.218 billion in non-programmable public sector spending in 2023 due to increased interest payments on variable rate debt and the costs of refinancing maturing debt.

This would imply that by the end of the year, the financial cost of the debt would have increased a little more than Mex$75 billion and could reach Mex$100 billion if the interest rate continues to rise to levels of 11.5% or 11.75%, as some analysts are beginning to expect.

In a previous interview, Adriana Hortiales, a public finance consultant, told Bloomberg Línea that the Mex$100 billion that the cost of debt would grow this year implies that the government will have to adjust to cover the increase in non-programmable spending.

JANUARY BUDGET REVENUES

Public sector budget revenues totaled Mex$623.037 billion, which represented a 6.3% real annual increase compared to the same month of last year.

The Treasury said in its report that the growth of total revenues is explained by the dynamism of oil and tax revenues, which registered a real annual growth of 11.2% and 5.5%, respectively.

Tax revenues grew above the average in the last five years.

Within this category, the ISR is the largest contributor to January’s collection, registering a 9.8% real annual increase.

With information from Bloomberg