There are more and more signs that show the real fragility of Mexico’s public finances, since the growing public debt, the fiscal deficit and the lack of efficiency in spending, add a new concern in the vast majority of municipalities in the country, all of which generates an alarming situation that requires prompt attention.
To be precise, I share what César Garza Villarreal said: In the coming months, 95 percent of the municipalities in Mexico will face a serious liquidity crisis due to the very considerable decrease in federal participations. And he must know something about the subject, since he is the president of Conamm and Fenamm, the Conference and the National Federation of Municipalities of Mexico.
In an interview cited by agencies, he points out that the delicate situation in which the municipalities find themselves is due to the fact that the federal government does not have the capacity to attend to this emergency given the weakening of the Fund for the Stabilization of the Income of the Federative Entities (FEIEF), caused by gasoline subsidy policies and high interest rates.
Figures from the Ministry of Finance reveal that the participations to the states and municipalities of the country during the first four months of 2023 suffered the largest drop in 14 years, of 8.3 percent, compared to the same period a year earlier, totaling 411,614 million pesos.
Such a serious situation is experienced throughout Mexico -says Garza Villarreal-, since the decrease in the participations has exacerbated the financial crisis of the municipalities, which intensified with the disappearance of competitive federal funds (destined to infrastructure works for the benefit of the communities) such as Security and the Metropolitan.
The lack of these funds, added to the decrease in federal participation, have led states and municipalities to implement programs to cut spending and reduce personnel, which has had a considerable impact on investment in infrastructure.
Even so, the municipalities have not received FEIEF resourcesto which they are entitled in the event of a drop in shares.
And, according to experts, even if this fund were applied in its entirety, it would only cover 20 percent of the decrease in participation at the national level, insufficient to face the contingency.
additional difficulties
In the midst of the economic recovery after the ravages caused by the Covid-19 pandemic, the Mexican Institute for Competitiveness (IMCO) also warns that local governments will face a more complicated financial scenario compared to the first years of the health crisis.
This research center specifies that federal participations in April posted their worst result in almost three years, which has caused concern. So the next few months will be difficult for the states due to the current federal landscape, characterized by inflationary pressures, the drop in the collection of value added taxes (VAT) and income tax (ISR), as well as the increase in costs financial.
And although the states will seek to make adjustments in response to such factors, 2023 will become one of the most challenging years for the states, because the resources of the stabilization funds (used to alleviate the initial impacts of the pandemic) have been exhausted. or are at very low levels.
That is why the states will have to face additional difficulties to maintain the balance in their public finances and fulfill their responsibilities.
In summary: today the thinnest part of the thread is closer to breaking, but the true and most serious problem is yet to exploder, when the money from all the drawers, the trusts, institutes and dependencies disappeared, ends for the Federal Government.
The economy is holding out for now thanks to that money that is being squandered on financially unviable presidential whims, but with mathematical certainty that situation will not last forever. Whoever is not taking forecasts from today will regret it much later.
Editor’s note: This text belongs to our Opinion section and reflects only the author’s vision, not necessarily the High Level point of view.
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William Beard Master in Economics from the Austrian School; liberal, gold market specialist and editor of investment newsletter Top Money Report