Abstract
Mexico has navigated successfully a complex external environment, characterized by falling commodity prices, a sharp appreciation of the U.S. dollar, and heightened volatility in international financial markets. The economy is projected to grow at 21/4 percent in 2015, with inflation close to the target. Looking ahead, growth should be supported by strengthening external demand and by the implementation of the structural reforms. The main risks are negative surprises to U.S. growth, a renewed surge in capital flow volatility, or a further decline in domestic oil production.
Public Debt Sustainability Analysis
Public debt is expected to remain sustainable given projected increases in interest rate costs and a moderate recovery of the economy in the medium term. Under the baseline, the public debt-to-GDP ratio is forecast to decline to about 50 percent by 2020 from the current level of 52 percent. Gross financing needs are about 11 percent of GDP in 2015, declining to 9 percent at the end of the forecasting period. The DSA suggests that public debt is sustainable under various shocks. A negative and sustained growth shock represents the major risk to the debt outlook. Even under such scenario gross debt remains slightly below 60 percent of GDP, without showing signals of an explosive trajectory. The impact of other shocks is smaller given that Mexico’s debt structure results in a relatively low direct interest and exchange rate pass-through to the budget. The public debt profile indicators are below early warning benchmarks. The main risks arise from the large share of debt held by non-residents—about 52 percent of total debt.
A. Comparison Previous Assessment
The baseline debt projection has increased slightly relative to last year’s DSA (2014 Mexico staff report). Gross public debt is 3 percentage points higher in 2015 relative to previous projections (from 48.9 to 51.9 percent to GDP) and 1.6 percentage points higher by the end of the projection period. Main factors explaining the different debt path are:
Higher primary deficit in the initial period, and stronger consolidation thereafter. The primary deficit for 2014 was 0.4 percentage points higher than originally expected. This is partially compensated by stronger consolidation efforts starting in 2015 (i.e., a primary deficit of 1.3 compared to 1.4 in the previous DSA).
Worse growth prospects for the whole projection period. The real GDP growth path is lower compared to last year’s projection over the whole projection period.
Higher peso depreciation in the initial period. While the previous DSA assumed a peso depreciation of 2.6 percent in 2014 and 0.9 percent thereafter, the current projections include a higher actual depreciation in 2014 (4.1 percent), and a significantly higher depreciation rate for 2015 (18.6 percent).
Worse financing conditions. The cost of financing increased relative to previous assessment. Although Mexico’s sovereign yields remain low, they increased from 173 in 2014 to 293 in 2015.1
B. Baseline and Realism of Projections
Debt-levels. As a result of the planned fiscal consolidation, gross debt levels are projected to decline from a peak of 52 percent of GDP in 2016 to about 50 of GDP by 2020. Staff projects that gross financing needs will be 10.8 percent of GDP in 201 (similar to the previous year), and will decrease to 8.7 percent of GDP by 2020.
Growth. Mexico’s debt dynamics are highly sensitive to surprises in GDP growth, as indicated by the response to growth shocks under the DSA stress tests. The median forecast error for real GDP growth is low and in line with other emerging countries. There is no evidence of a systematic projection bias in the baseline assumption for growth that could undermine the DSA assessment. Current output growth projections at 2.2 percent for 2015 are in line with official estimates.2
Sovereign yields. Despite the volatility observed in most emerging markets in recent months, Mexico’s sovereign yields remain low, with the 10-year local currency bond yield at around 6 percent as of September 3, 2015. The spread with U.S. government bonds yields of the same maturity has remained on average at 380 basis points for the last three months. Spreads on foreign currency-denominated bonds have increased by about 80 basis points since last December. The local-currency sovereign yield curve has shifted up, but only slightly. Given the upward projections for the US Libor rates over the medium-term, the effective nominal interest rate on Mexico’s sovereign debt is projected to rise from 6.1 percent in 2014 to 7.6 percent by 2020.
Fiscal adjustment. In the baseline projection, the structural primary balance (adjusted by the cycle and oil prices) improves between 2015 and 2020. On the revenue side, the consolidation effort is driven by higher non-oil revenues that follow from the effects of the 2013-14 tax and energy reforms. Higher non-oil revenues more than compensate for the fall in oil revenues related to lower international oil prices and lower domestic production of crude oil. On the spending side, projections assume compliance with the structural spending rule,3 as well as some savings from the 2015 cuts and the zero-based budgeting exercise in 2016. Considering the distribution of fiscal adjustment episodes provided in the DSA template, and pre-2009 Mexican evidence, the projected 3-year adjustment of the structural primary balance of 1.5 percent of GDP seems feasible.
Maturity and rollover risks. Given current debt structure (average maturity close to 8 years, 82 percent share of government securities at fixed interest rates, and only 24 percent of debt denominated in foreign currency), the immediate effect of interest rate changes on the budget is very low. The long maturity structure also reduces rollover risks. A 100 basis points shock to the yield curve across maturities is estimated to raise the interest bill by just 0.1 percentage points of GDP. Similarly, a shock to the real exchange rate would have a relatively small impact on the debt stock, given the large share of debt denominated in local currency (about 76 percent).
C. Shocks and Stress Tests
Primary balance shock. A deterioration of 0.8 percentage point of GDP in the primary balance in 2016-17 increases public debt to 51.6 percent of GDP by the end of the projection period. The gross financing needs also increase moderately. Effective interest rates on public debt do not deviate significantly from the baseline.
Growth shock. Real output growth rates are lowered by 1 standard deviation (2.8 percentage points) for 2 years starting in 2016. The decline in growth leads to a deterioration of nominal primary balance compared to the baseline—as nominal revenues fall against unchanged expenditure plans—reaching -1.4 percent of GDP by 2017. Accordingly, the debt-to-GDP ratio increases to about 58.5 percent during the growth shock, and to 56.8 percent by the end of the projection period. Gross financing needs climb up to 12.2 percent of GDP in 2018, and stabilize at around 10 percent at the end of period.
Interest rate shock. Interest rates are assumed to increase by 200 bps starting in 2016. The government’s interest bill increased gradually, reaching an implicit average interest rate of almost 8.5 percent by 2020, almost 1 percent higher than in the baseline. Similarly, the debt-to-GDP ratio and gross financing needs increase, reaching 51.7 and 9.3 percent of GDP respectively by 2020.
Real exchange rate shock.4 A permanent real exchange rate depreciation of 15 percent increases debt by 1.9 percentage point of GDP. Gross financing needs increase by 0.2 percentage point in 2016 and by 0.4 percentage point in 2018.
Combined shock. A combined shock incorporates the largest effect of individual shocks on all relevant variables (real GDP growth, inflation, primary balance, exchange rate and interest rate). In this case, debt would stabilize at around 61 percent of GDP, without showing signals of an explosive trajectory. Gross financing need peak at 13.3 percent in 2018 and stabilize at 11.6 at the end of the period.
Mexico Public Sector Debt Sustainability Analysis (DSA) - Baseline Scenario
(in percent of GDP unless otherwise indicated)
Citation: IMF Staff Country Reports 2015, 313; 10.5089/9781513571324.002.A003
Source: IMF staff.1/ Public sector is defined as the central government, state-owned enterprises, public sector development banks, and social security funds.2/ Based on available data.3/ Defined as interest payments divided by debt stock at the end of previous year.4/ Derived as [(r - p(1+g) - g + ae(1+r)]/(1+g+p+gp)) times previous period debt ratio, with r = interest rate; p = growth rate of GDP deflator; g = real GDP growth rate; a = share of foreign-currency denominated debt; and e = nominal exchange rate depreciation (measured by increase in local currency value of U.S. dollar).5/ The real interest rate contribution is derived from the denominator in footnote 4 as r - π (1+g) and the real growth contribution as -g.6/ The exchange rate contribution is derived from the numerator in footnote 2/ as ae(1+r).7/ For projections, this line includes exchange rate changes during the projection period.8/ Assumes that key variables (real GDP growth, real interest rate, and other identified debt-creating flows) remain at the level of the last projection year.Mexico Public Sector Debt Sustainability Analysis (DSA) - Baseline Scenario
(in percent of GDP unless otherwise indicated)
Citation: IMF Staff Country Reports 2015, 313; 10.5089/9781513571324.002.A003
Source: IMF staff.1/ Public sector is defined as the central government, state-owned enterprises, public sector development banks, and social security funds.2/ Based on available data.3/ Defined as interest payments divided by debt stock at the end of previous year.4/ Derived as [(r - p(1+g) - g + ae(1+r)]/(1+g+p+gp)) times previous period debt ratio, with r = interest rate; p = growth rate of GDP deflator; g = real GDP growth rate; a = share of foreign-currency denominated debt; and e = nominal exchange rate depreciation (measured by increase in local currency value of U.S. dollar).5/ The real interest rate contribution is derived from the denominator in footnote 4 as r - π (1+g) and the real growth contribution as -g.6/ The exchange rate contribution is derived from the numerator in footnote 2/ as ae(1+r).7/ For projections, this line includes exchange rate changes during the projection period.8/ Assumes that key variables (real GDP growth, real interest rate, and other identified debt-creating flows) remain at the level of the last projection year.Mexico Public Sector Debt Sustainability Analysis (DSA) - Baseline Scenario
(in percent of GDP unless otherwise indicated)
Citation: IMF Staff Country Reports 2015, 313; 10.5089/9781513571324.002.A003
Source: IMF staff.1/ Public sector is defined as the central government, state-owned enterprises, public sector development banks, and social security funds.2/ Based on available data.3/ Defined as interest payments divided by debt stock at the end of previous year.4/ Derived as [(r - p(1+g) - g + ae(1+r)]/(1+g+p+gp)) times previous period debt ratio, with r = interest rate; p = growth rate of GDP deflator; g = real GDP growth rate; a = share of foreign-currency denominated debt; and e = nominal exchange rate depreciation (measured by increase in local currency value of U.S. dollar).5/ The real interest rate contribution is derived from the denominator in footnote 4 as r - π (1+g) and the real growth contribution as -g.6/ The exchange rate contribution is derived from the numerator in footnote 2/ as ae(1+r).7/ For projections, this line includes exchange rate changes during the projection period.8/ Assumes that key variables (real GDP growth, real interest rate, and other identified debt-creating flows) remain at the level of the last projection year.
Mexico: Public DSA - Composition of Public Debt and Alternative Scenarios
Citation: IMF Staff Country Reports 2015, 313; 10.5089/9781513571324.002.A003
Source: IMF staff.Mexico: Public DSA - Composition of Public Debt and Alternative Scenarios
Citation: IMF Staff Country Reports 2015, 313; 10.5089/9781513571324.002.A003
Source: IMF staff.Mexico: Public DSA - Composition of Public Debt and Alternative Scenarios
Citation: IMF Staff Country Reports 2015, 313; 10.5089/9781513571324.002.A003
Source: IMF staff.
Mexico: Public DSA - Realism of Baseline Assumptions
Citation: IMF Staff Country Reports 2015, 313; 10.5089/9781513571324.002.A003
Source: IMF Staff.1/ Plotted distribution includes all countries, percentile rank refers to all countries.2/ Projections made in the spring WEO vintage of the preceding year.3/ Data cover annual obervations from 1990 to 2011 for advanced and emerging economies with debt greater than 60 percent of GDP. Percent of sample on vertical axis.Mexico: Public DSA - Realism of Baseline Assumptions
Citation: IMF Staff Country Reports 2015, 313; 10.5089/9781513571324.002.A003
Source: IMF Staff.1/ Plotted distribution includes all countries, percentile rank refers to all countries.2/ Projections made in the spring WEO vintage of the preceding year.3/ Data cover annual obervations from 1990 to 2011 for advanced and emerging economies with debt greater than 60 percent of GDP. Percent of sample on vertical axis.Mexico: Public DSA - Realism of Baseline Assumptions
Citation: IMF Staff Country Reports 2015, 313; 10.5089/9781513571324.002.A003
Source: IMF Staff.1/ Plotted distribution includes all countries, percentile rank refers to all countries.2/ Projections made in the spring WEO vintage of the preceding year.3/ Data cover annual obervations from 1990 to 2011 for advanced and emerging economies with debt greater than 60 percent of GDP. Percent of sample on vertical axis.
Mexico: Public DSA - Stress Tests
Citation: IMF Staff Country Reports 2015, 313; 10.5089/9781513571324.002.A003
Source: IMF staff.Mexico: Public DSA - Stress Tests
Citation: IMF Staff Country Reports 2015, 313; 10.5089/9781513571324.002.A003
Source: IMF staff.Mexico: Public DSA - Stress Tests
Citation: IMF Staff Country Reports 2015, 313; 10.5089/9781513571324.002.A003
Source: IMF staff.
Mexico Public DSA Risk Assessment
Citation: IMF Staff Country Reports 2015, 313; 10.5089/9781513571324.002.A003
Source: IMF staff.1/ The cell is highlighted in green if debt burden benchmark of 70% is not exceeded under the specific shock or baseline, yellow if exceeded under specific shock but not baseline, red if benchmark is exceeded under baseline, white if stress test is not relevant.2/ The cell is highlighted in green if gross financing needs benchmark of 15% is not exceeded under the specific shock or baseline, yellow if exceeded under specific shock but not baseline, red if benchmark is exceeded under baseline, white if stress test is not relevant.3/ The cell is highlighted in green if country value is less than the lower risk-assessment benchmark, red if country value exceeds the upper risk-assessment benchmark, yellow if country value is between the lower and upper risk-assessment benchmarks. If data are unavailable or indicator is not relevant, cell is white. Lower and upper risk-assessment benchmarks are:200 and 600 basis points for bond spreads; 5 and 15 percent of GDP for external financing requirement; 0.5 and 1 percent for change in the share of short-term debt; 15 and 45 percent for the public debt held by non-residents; and 20 and 60 percent for the share of foreign-currency denominated debt.4/ An average over the last 3 months, 11-Jun-15 through 09-Sep-15.Mexico Public DSA Risk Assessment
Citation: IMF Staff Country Reports 2015, 313; 10.5089/9781513571324.002.A003
Source: IMF staff.1/ The cell is highlighted in green if debt burden benchmark of 70% is not exceeded under the specific shock or baseline, yellow if exceeded under specific shock but not baseline, red if benchmark is exceeded under baseline, white if stress test is not relevant.2/ The cell is highlighted in green if gross financing needs benchmark of 15% is not exceeded under the specific shock or baseline, yellow if exceeded under specific shock but not baseline, red if benchmark is exceeded under baseline, white if stress test is not relevant.3/ The cell is highlighted in green if country value is less than the lower risk-assessment benchmark, red if country value exceeds the upper risk-assessment benchmark, yellow if country value is between the lower and upper risk-assessment benchmarks. If data are unavailable or indicator is not relevant, cell is white. Lower and upper risk-assessment benchmarks are:200 and 600 basis points for bond spreads; 5 and 15 percent of GDP for external financing requirement; 0.5 and 1 percent for change in the share of short-term debt; 15 and 45 percent for the public debt held by non-residents; and 20 and 60 percent for the share of foreign-currency denominated debt.4/ An average over the last 3 months, 11-Jun-15 through 09-Sep-15.Mexico Public DSA Risk Assessment
Citation: IMF Staff Country Reports 2015, 313; 10.5089/9781513571324.002.A003
Source: IMF staff.1/ The cell is highlighted in green if debt burden benchmark of 70% is not exceeded under the specific shock or baseline, yellow if exceeded under specific shock but not baseline, red if benchmark is exceeded under baseline, white if stress test is not relevant.2/ The cell is highlighted in green if gross financing needs benchmark of 15% is not exceeded under the specific shock or baseline, yellow if exceeded under specific shock but not baseline, red if benchmark is exceeded under baseline, white if stress test is not relevant.3/ The cell is highlighted in green if country value is less than the lower risk-assessment benchmark, red if country value exceeds the upper risk-assessment benchmark, yellow if country value is between the lower and upper risk-assessment benchmarks. If data are unavailable or indicator is not relevant, cell is white. Lower and upper risk-assessment benchmarks are:200 and 600 basis points for bond spreads; 5 and 15 percent of GDP for external financing requirement; 0.5 and 1 percent for change in the share of short-term debt; 15 and 45 percent for the public debt held by non-residents; and 20 and 60 percent for the share of foreign-currency denominated debt.4/ An average over the last 3 months, 11-Jun-15 through 09-Sep-15.External Debt Sustainability Analysis
Mexico’s external-debt-to GDP ratio continues to be low and sustainable (expected at 38 percent projected for end-2015), and is expected to remain stable over the medium term. Most shock scenarios would increase external debt by just a few percentage points. The largest increase would occur under a depreciation scenario. Indeed, the depreciation of peso is the main reason for the rise in the external debt to GDP share from 33 percent and end-2014. However, even in the unlikely event of a further 30 percent real exchange rate depreciation, the debt-to-GDP ratio would increase to just over 50 percent, which would still be manageable. The reason for this contained increase is that almost half of Mexico’s public external debt is now denominated in pesos. Debt dynamics also benefit from the low interest rates and long maturities of the existing debt.
Mexico: External Debt Sustainability: Bound Tests 1/2/
(External debt in percent of GDP)
Citation: IMF Staff Country Reports 2015, 313; 10.5089/9781513571324.002.A003
Sources: International Monetary Fund, Country desk data, and staff estimates.1/ Shaded areas represent actual data. Individual shocks are permanent one-half standard deviation shocks. Figures in the boxes represent average projections for the respective variables in the baseline and scenario being presented. Ten-year historical average for the variable is also shown.2/ For historical scenarios, the historical averages are calculated over the ten-year period, and the information is used to project debt dynamics five years ahead.3/ Permanent ¼ standard deviation shocks applied to real interest rate, growth rate, and current account balance.4/ One-time real depreciation of 30 percent occurs in 2014.Mexico: External Debt Sustainability: Bound Tests 1/2/
(External debt in percent of GDP)
Citation: IMF Staff Country Reports 2015, 313; 10.5089/9781513571324.002.A003
Sources: International Monetary Fund, Country desk data, and staff estimates.1/ Shaded areas represent actual data. Individual shocks are permanent one-half standard deviation shocks. Figures in the boxes represent average projections for the respective variables in the baseline and scenario being presented. Ten-year historical average for the variable is also shown.2/ For historical scenarios, the historical averages are calculated over the ten-year period, and the information is used to project debt dynamics five years ahead.3/ Permanent ¼ standard deviation shocks applied to real interest rate, growth rate, and current account balance.4/ One-time real depreciation of 30 percent occurs in 2014.Mexico: External Debt Sustainability: Bound Tests 1/2/
(External debt in percent of GDP)
Citation: IMF Staff Country Reports 2015, 313; 10.5089/9781513571324.002.A003
Sources: International Monetary Fund, Country desk data, and staff estimates.1/ Shaded areas represent actual data. Individual shocks are permanent one-half standard deviation shocks. Figures in the boxes represent average projections for the respective variables in the baseline and scenario being presented. Ten-year historical average for the variable is also shown.2/ For historical scenarios, the historical averages are calculated over the ten-year period, and the information is used to project debt dynamics five years ahead.3/ Permanent ¼ standard deviation shocks applied to real interest rate, growth rate, and current account balance.4/ One-time real depreciation of 30 percent occurs in 2014.Mexico: External Debt Sustainability Framework
(In percent of GDP, unless otherwise indicated)
Derived as [r - g - r(1+g) + ea(1+r)]/(1+g+r+gr) times previous period debt stock, with r = nominal effective interest rate on external debt; r = change in domestic GDP deflator in US dollar terms, g = real GDP growth rate, e = nominal appreciation (increase in dollar value of domestic currency), and a = share of domestic-currency denominated debt in total external debt.
The contribution from price and exchange rate changes is defined as [-r(1+g) + ea(1+r)]/(1+g+r+gr) times previous period debt stock. r increases with an appreciating domestic currency (e > 0) and rising inflation (based on GDP deflator).
For projection, line includes the impact of price and exchange rate changes.
Defined as current account deficit, plus amortization on medium- and long-term debt, plus short-term debt at end of previous period, excluding reserve accumulation.
The key variables include real GDP growth; nominal interest rate; dollar deflator growth; and both non-interest current account and non-debt inflows in percent of GDP.
Long-run, constant balance that stabilizes the debt ratio assuming that key variables (real GDP growth, nominal interest rate, dollar deflator growth, and non-debt inflows in percent of GDP) remain at their levels of the last projection year.
Mexico: External Debt Sustainability Framework
(In percent of GDP, unless otherwise indicated)
| Actual | Projections | |||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | Debt-stabilizing non-interest current account 6/ | |||||||
| 1 | Baseline: External debt | 23.2 | 24.0 | 28.9 | 31.0 | 32.8 | 37.8 | 37.8 | 38.0 | 38.5 | 38.7 | 38.8 | −0.8 | |||||
| 2 | Change in external debt | 2.0 | 0.8 | 4.9 | 2.1 | 1.7 | 5.0 | −0.1 | 0.2 | 0.5 | 0.2 | 0.0 | ||||||
| 3 | Identified external debt-creating flows (4+8+9) | 2.7 | −2.4 | 0.1 | 0.9 | −0.8 | 0.1 | −0.4 | −0.6 | −0.3 | −0.5 | −0.7 | ||||||
| 4 | Current account deficit, excluding interest payments | −0.9 | −0.4 | −0.3 | 0.6 | 0.0 | −0.3 | −0.6 | −0.7 | −0.6 | −0.8 | −1.0 | ||||||
| 5 | Deficit in balance of goods and services | 3.8 | 2.7 | 1.4 | 1.2 | 1.0 | 1.5 | 1.4 | 1.7 | 2.1 | 2.0 | 2.0 | ||||||
| 6 | Exports | 27.4 | 29.9 | 31.2 | 32.7 | 31.8 | 35.5 | 35.9 | 37.7 | 39.1 | 40.2 | 40.8 | ||||||
| 7 | Imports | 31.2 | 32.6 | 32.6 | 32.8 | 33.7 | 37.0 | 37.3 | 39.3 | 41.2 | 42.2 | 42.8 | ||||||
| 8 | Net non-debt creating capital inflows (negative) | −1.1 | −0.4 | −0.6 | −2.4 | −1.6 | −1.4 | −1.6 | −1.9 | −1.9 | −1.9 | −1.8 | ||||||
| 9 | Automatic debt dynamics 1/ | 4.6 | −1.7 | 1.0 | 2.7 | 0.8 | 1.8 | 1.8 | 1.9 | 2.1 | 2.2 | 2.2 | ||||||
| 10 | Contribution from nominal interest rate | 1.8 | 1.5 | 1.7 | 2.0 | 2.0 | 2.6 | 2.7 | 3.0 | 3.2 | 3.4 | 3.4 | ||||||
| 11 | Contribution from real GDP growth | −1.2 | −0.8 | −1.0 | −0.4 | −0.6 | −0.8 | −0.9 | −1.0 | −1.1 | −1.2 | −1.2 | ||||||
| 12 | Contribution from price and exchange rate changes 2/ | 4.1 | −2.3 | 0.3 | 1.1 | −0.5 | … | … | … | … | … | … | ||||||
| 13 | Residual, incl. change in gross foreign assets (2-3) 3/ | −0.7 | 3.3 | 4.7 | 1.3 | 2.6 | 4.9 | 0.3 | 0.8 | 0.9 | 0.7 | 0.7 | ||||||
| External debt-to-exports ratio (in percent) | 84.8 | 80.4 | 92.6 | 94.9 | 103.1 | 106.5 | 105.2 | 100.9 | 98.5 | 96.4 | 95.0 | |||||||
| Gross external financing needs (in billions of US dollars) 4/ | 48.1 | 74.9 | 90.8 | 135.9 | 148.2 | 147.5 | 141.6 | 149.7 | 158.6 | 165.4 | 169.1 | |||||||
| in percent of GDP | 4.6 | 6.4 | 7.7 | 10.8 | 11.5 | 10-Year | 10-Year | 12.7 | 11.5 | 11.5 | 11.6 | 11.4 | 11.0 | |||||
| Scenario with key variables at their historical averages 5/ | 37.8 | 38.3 | 38.9 | 39.4 | 39.9 | 40.6 | −0.9 | |||||||||||
| Key Macroeconomic Assumptions Underlying Baseline | Historical Average | Standard Deviation | ||||||||||||||||
| Real GDP growth (in percent) | 5.1 | 4.0 | 4.0 | 1.4 | 2.1 | 2.5 | 2.8 | 2.2 | 2.5 | 2.9 | 3.1 | 3.2 | 3.3 | |||||
| GDP deflator in US dollars (change in percent) | −15.3 | 11.6 | −2.6 | −2.7 | 0.2 | 3.1 | 7.5 | −12.0 | 3.7 | 2.3 | 2.1 | 2.6 | 2.9 | |||||
| Nominal external interest rate (in percent) | 7.5 | 7.3 | 7.2 | 6.8 | 6.5 | 7.6 | 1.1 | 7.0 | 7.5 | 8.3 | 9.0 | 9.4 | 9.3 | |||||
| Growth of exports (US dollar terms, in percent) | 28.3 | 16.4 | 6.0 | 3.4 | 4.5 | 8.3 | 12.7 | −1.5 | 7.4 | 10.5 | 9.4 | 8.7 | 8.0 | |||||
| Growth of imports (US dollar terms, in percent) | −22.5 | 16.5 | 5.3 | 5.4 | 5.2 | 7.9 | 12.6 | −1.2 | 7.2 | 10.9 | 10.4 | 8.5 | 7.6 | |||||
| Current account balance, excluding interest payments | 0.9 | 0.4 | 0.3 | −0.6 | 0.0 | 0.3 | 0.4 | 0.3 | 0.6 | 0.7 | 0.6 | 0.8 | 1.0 | |||||
| Net non-debt creating capital inflows | 1.1 | 0.4 | 0.6 | 2.4 | 1.6 | 1.6 | 0.8 | 1.4 | 1.6 | 1.9 | 1.9 | 1.9 | 1.8 | |||||
Derived as [r - g - r(1+g) + ea(1+r)]/(1+g+r+gr) times previous period debt stock, with r = nominal effective interest rate on external debt; r = change in domestic GDP deflator in US dollar terms, g = real GDP growth rate, e = nominal appreciation (increase in dollar value of domestic currency), and a = share of domestic-currency denominated debt in total external debt.
The contribution from price and exchange rate changes is defined as [-r(1+g) + ea(1+r)]/(1+g+r+gr) times previous period debt stock. r increases with an appreciating domestic currency (e > 0) and rising inflation (based on GDP deflator).
For projection, line includes the impact of price and exchange rate changes.
Defined as current account deficit, plus amortization on medium- and long-term debt, plus short-term debt at end of previous period, excluding reserve accumulation.
The key variables include real GDP growth; nominal interest rate; dollar deflator growth; and both non-interest current account and non-debt inflows in percent of GDP.
Long-run, constant balance that stabilizes the debt ratio assuming that key variables (real GDP growth, nominal interest rate, dollar deflator growth, and non-debt inflows in percent of GDP) remain at their levels of the last projection year.
Mexico: External Debt Sustainability Framework
(In percent of GDP, unless otherwise indicated)
| Actual | Projections | |||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | Debt-stabilizing non-interest current account 6/ | |||||||
| 1 | Baseline: External debt | 23.2 | 24.0 | 28.9 | 31.0 | 32.8 | 37.8 | 37.8 | 38.0 | 38.5 | 38.7 | 38.8 | −0.8 | |||||
| 2 | Change in external debt | 2.0 | 0.8 | 4.9 | 2.1 | 1.7 | 5.0 | −0.1 | 0.2 | 0.5 | 0.2 | 0.0 | ||||||
| 3 | Identified external debt-creating flows (4+8+9) | 2.7 | −2.4 | 0.1 | 0.9 | −0.8 | 0.1 | −0.4 | −0.6 | −0.3 | −0.5 | −0.7 | ||||||
| 4 | Current account deficit, excluding interest payments | −0.9 | −0.4 | −0.3 | 0.6 | 0.0 | −0.3 | −0.6 | −0.7 | −0.6 | −0.8 | −1.0 | ||||||
| 5 | Deficit in balance of goods and services | 3.8 | 2.7 | 1.4 | 1.2 | 1.0 | 1.5 | 1.4 | 1.7 | 2.1 | 2.0 | 2.0 | ||||||
| 6 | Exports | 27.4 | 29.9 | 31.2 | 32.7 | 31.8 | 35.5 | 35.9 | 37.7 | 39.1 | 40.2 | 40.8 | ||||||
| 7 | Imports | 31.2 | 32.6 | 32.6 | 32.8 | 33.7 | 37.0 | 37.3 | 39.3 | 41.2 | 42.2 | 42.8 | ||||||
| 8 | Net non-debt creating capital inflows (negative) | −1.1 | −0.4 | −0.6 | −2.4 | −1.6 | −1.4 | −1.6 | −1.9 | −1.9 | −1.9 | −1.8 | ||||||
| 9 | Automatic debt dynamics 1/ | 4.6 | −1.7 | 1.0 | 2.7 | 0.8 | 1.8 | 1.8 | 1.9 | 2.1 | 2.2 | 2.2 | ||||||
| 10 | Contribution from nominal interest rate | 1.8 | 1.5 | 1.7 | 2.0 | 2.0 | 2.6 | 2.7 | 3.0 | 3.2 | 3.4 | 3.4 | ||||||
| 11 | Contribution from real GDP growth | −1.2 | −0.8 | −1.0 | −0.4 | −0.6 | −0.8 | −0.9 | −1.0 | −1.1 | −1.2 | −1.2 | ||||||
| 12 | Contribution from price and exchange rate changes 2/ | 4.1 | −2.3 | 0.3 | 1.1 | −0.5 | … | … | … | … | … | … | ||||||
| 13 | Residual, incl. change in gross foreign assets (2-3) 3/ | −0.7 | 3.3 | 4.7 | 1.3 | 2.6 | 4.9 | 0.3 | 0.8 | 0.9 | 0.7 | 0.7 | ||||||
| External debt-to-exports ratio (in percent) | 84.8 | 80.4 | 92.6 | 94.9 | 103.1 | 106.5 | 105.2 | 100.9 | 98.5 | 96.4 | 95.0 | |||||||
| Gross external financing needs (in billions of US dollars) 4/ | 48.1 | 74.9 | 90.8 | 135.9 | 148.2 | 147.5 | 141.6 | 149.7 | 158.6 | 165.4 | 169.1 | |||||||
| in percent of GDP | 4.6 | 6.4 | 7.7 | 10.8 | 11.5 | 10-Year | 10-Year | 12.7 | 11.5 | 11.5 | 11.6 | 11.4 | 11.0 | |||||
| Scenario with key variables at their historical averages 5/ | 37.8 | 38.3 | 38.9 | 39.4 | 39.9 | 40.6 | −0.9 | |||||||||||
| Key Macroeconomic Assumptions Underlying Baseline | Historical Average | Standard Deviation | ||||||||||||||||
| Real GDP growth (in percent) | 5.1 | 4.0 | 4.0 | 1.4 | 2.1 | 2.5 | 2.8 | 2.2 | 2.5 | 2.9 | 3.1 | 3.2 | 3.3 | |||||
| GDP deflator in US dollars (change in percent) | −15.3 | 11.6 | −2.6 | −2.7 | 0.2 | 3.1 | 7.5 | −12.0 | 3.7 | 2.3 | 2.1 | 2.6 | 2.9 | |||||
| Nominal external interest rate (in percent) | 7.5 | 7.3 | 7.2 | 6.8 | 6.5 | 7.6 | 1.1 | 7.0 | 7.5 | 8.3 | 9.0 | 9.4 | 9.3 | |||||
| Growth of exports (US dollar terms, in percent) | 28.3 | 16.4 | 6.0 | 3.4 | 4.5 | 8.3 | 12.7 | −1.5 | 7.4 | 10.5 | 9.4 | 8.7 | 8.0 | |||||
| Growth of imports (US dollar terms, in percent) | −22.5 | 16.5 | 5.3 | 5.4 | 5.2 | 7.9 | 12.6 | −1.2 | 7.2 | 10.9 | 10.4 | 8.5 | 7.6 | |||||
| Current account balance, excluding interest payments | 0.9 | 0.4 | 0.3 | −0.6 | 0.0 | 0.3 | 0.4 | 0.3 | 0.6 | 0.7 | 0.6 | 0.8 | 1.0 | |||||
| Net non-debt creating capital inflows | 1.1 | 0.4 | 0.6 | 2.4 | 1.6 | 1.6 | 0.8 | 1.4 | 1.6 | 1.9 | 1.9 | 1.9 | 1.8 | |||||
Derived as [r - g - r(1+g) + ea(1+r)]/(1+g+r+gr) times previous period debt stock, with r = nominal effective interest rate on external debt; r = change in domestic GDP deflator in US dollar terms, g = real GDP growth rate, e = nominal appreciation (increase in dollar value of domestic currency), and a = share of domestic-currency denominated debt in total external debt.
The contribution from price and exchange rate changes is defined as [-r(1+g) + ea(1+r)]/(1+g+r+gr) times previous period debt stock. r increases with an appreciating domestic currency (e > 0) and rising inflation (based on GDP deflator).
For projection, line includes the impact of price and exchange rate changes.
Defined as current account deficit, plus amortization on medium- and long-term debt, plus short-term debt at end of previous period, excluding reserve accumulation.
The key variables include real GDP growth; nominal interest rate; dollar deflator growth; and both non-interest current account and non-debt inflows in percent of GDP.
Long-run, constant balance that stabilizes the debt ratio assuming that key variables (real GDP growth, nominal interest rate, dollar deflator growth, and non-debt inflows in percent of GDP) remain at their levels of the last projection year.
As of August 25, 2015.
SHCP projects growth for 2015 between 2.0 and 2.8 percent.
The 2014 amendments to the fiscal responsibility law introduced a cap on the growth structural current spending (comprising about 50 percent of all primary spending) from 2015.
Given the observed very low pass-through of depreciation to inflation in Mexico so far, this shock uses the low pass-through elasticity of 3 percent rather than the default value of 25 percent.
