Mexico | Tapping rainy funds in 2020 will cause more future vulnerability

Summary

The sharp annual drop in public revenue as of April, which is very likely to continue until March of 2021, will make the Ministry of Finance tap the main rainy funds for budgetary stabilization (FEIP and FEIF) to avoid more public spending cuts.

Key points

• Key points:
• We anticipate that the devastating economic crisis derived from the pandemic will be reflected on both a real GDP contraction between 9% and 12% YoY and tax revenue losses between MXN 297,836 million and MXN 420,855 million. These amounts would represent between 8.9% and 12.6% of the tax revenue and between 5.7% and 8.1% of the total public revenue figures published in the 2021 General Economic Policy Preliminary Guidelines
• We foresee the federal government will at least tap MXN 100,000 million from the FEIP fund to partially make up for the aforementioned expected loss in tax revenue
• It is very likely that FEIF transfers to state governments will continue in the next months to compensate for the reduction in federal revenue-sharing with those governments
• The expected drastic drop in the balances of these rainy funds will both cause more vulnerability in public finances and make more evident the need to carry out a fiscal reform

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