State debt does not represent a systemic risk for Mexico: WB

Gerardo Corrochano, country director of the World Bank for Mexico, says that the debt of the states and municipalities does not represent a systemic risk to Mexico, though there are concerns about the existence of local governments with over-indebtedness.

After the crisis of 2008 and 2009 the Mexican economy slowed and revenue of local governments decreased while their liabilities and expenses rose. Also, they have a limited ability to increase their own revenues. For this reasons, the state debt rose from 1.7 % of the GDP in 2008 to 3%.

“It remains relatively low and does not pos­e a sys­temic risk to the country," Corrochano said.

At the inauguration of the seminar on the Law on Financial Discipline for States and Municipalities organized by Moody's, he explained that more local governments are seeking to restructure their loans.

"The number of states with financial difficulties has it increased in recent years. Similarly, more state governments have problems of over-indebtedness and there is a growing demand to restructure their debts,” Corrochano said.

He added that this law is expected to be enacted this week by the federal government and that the main challenge for the World Bank will be to implement it as soon as possible.

For the World Bank, the Mexican government has taken a decisive step to improve the regulatory framework for state and municipal debt because "the law contains rules on fiscal balances that are linked to alert systems of debt indicators and other fiscal variables”, as well as conditions under which the federal government can provide guarantees to restructure local debts and requirements to improve taxing.