Economics: No game plan and scant oil money
The Mexican economy’s fragility in the face of the global economic crisis has highlighted several structural deficiencies, including the country’s longstanding petrolization of foreign accounts and public finance dating back to the early eighties. Current account dependence on oil was corrected as Nafta allowed for a substantial diversification of non petroleum exports, but the petrolization of public finance continued apace, with oil revenues accounting for over 44% of federal government revenues as recently as 2008.
However, the global crisis sparked early this year by the Covid-19 pandemic is forcing the federal government to depend less and less on payments from Petróleos Mexicanos, whose financial and operational numbers get worse by the day. Under an inertial scenario, petroleum revenues paid by Pemex will be halved this year from a mere 1.8% of GDP to 0.9% in 2020, the lowest level in recent history.
The absence of a clear, comprehensive and convincing strategy for the future of Petróleos Mexicanos and its relationship to public coffers has taken a terrible toll on investor confidence in Mexico, a fact underlined by a series of major downgrades of both Mexican sovereign and Pemex bonds. This sudden de-petrolization of Mexican public finance is clearly one forced upon the government by global market pressures, not any deliberate strategy to reshape the revenue base. Mexico remains one of the countries for which fiscal revenues represent the lowest share of GDP, and the steep reduction in economic activity this year means tax receipts will also be greatly reduced.
A sustainable de-petrolization of Mexican publican finances requires a set of policies aimed at correcting these fiscal problems (emergency program). Our report shows two possible scenarios towards 2024: a case resulting from no substantial changes (inertial), and a scenario that considers some key policy elements duly explained in our analysis.
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