Mexico | Public debt could rise by 15 percentage points of GDP in 2020

Summary

A year-on-year fall in real GDP ranging between 7.0% and 12.0% in 2020 would cause the HBPSBR (Historical Balance of Public Sector Borrowing Requirements) to rise from 44.7% to 53.4% and 59.2% of GDP, respectively.

Key points

• Key points:
• In the case of a real GDP annual contraction of 7.0% in 2020, the HBPSBR would rise by 8.7 percentage points of GDP due to increased PSBR, lower nominal GDP and depreciation of the peso. The contribution of these factors to the increase would be 5.5, 1.9 and 1.4 percentage points, respectively
• In the event of a 12.0% year-on-year contraction of real GDP in 2020, the increment of 14.5 percentage points of GDP in the HBPSBR would also be due to increased PSBR, lower nominal GDP and depreciation of the peso. The contribution of these factors to the increase would be 6.3, 5.0 and 3.2 percentage points, respectively
• While the lower nominal GDP would directly cause approximately 35% of the total increase of 14.5 percentage points, it would also have an impact in the form of additional PSBR to those approved by Congress for 2020. These would account for 24% of the increase
• Our GDP estimates assume that there will be no countercyclical fiscal response. Therefore, we think that the federal government should avoid a deeper fall in economic activity through a reallocation of public spending that expands the fiscal stimulus package
• Thus, not only would a higher public debt-to-GDP ratio and a reduced fiscal space going forward be averted, but it would also accelerate the post-pandemic economic recovery

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