Will Mexico increase its external debt?

In the face of economic contraction, is this the only option left?

Will Mexico increase its external debt?
Mexico entered into a mild recession in early 2019 - Photo: File Photo/EL UNIVERSAL
English 04/12/2019 09:38 Mexico City Editorial Actualizada 09:41
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During the third trimester of 2019, tax collection fell in contrast with the same period in 2018. Tax collection through VAT, income tax, and oil revenues, was under the expected numbers and it also registered a decrease in the special tax on production and services (IEPS) on gas and diesel.

According to numbers from the Finance Ministry, the tax revenue registered a considerable decrease by collecting MXN $2.4 billion only, against the MXN $2.5 billion goal. Although the ministry has explained that the decrease in tax collection is not exclusive to Mexico and that it is linked to a contraction in the global economy, the truth is that the federal government won't fulfill its expectations in the short term.

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In an interview with EL UNIVERSAL, Vicente Mendoza, the head of the Permanent Commission of Tax Officials, he said that in the face of a not so promising prospect the Mexican economy will face in 2020 and 2021, it is certain that the EIEF, a federated fund for revenue stabilization, could be used next year, in the face of different internal commitments each state government has, which were mostly inherited from previous administrations, such as the payment of millions in debt to the SAT, IMSS, ISSSTE, and Conagua.

Besides these debts, which should be paid in full, each state has the obligation to allocate resources to develop infrastructure to fulfill the needs of its inhabitants, especially in areas such as health, education, housing, roads, and other basic services.

Therefore, these numbers contrast with the optimism in the federal government, since the 2020 Revenue Law considers an improved economic panorama, which doesn't seem to take into consideration that tax collection in the states didn't reach its goal this year.

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This is a dangerous scenario because Mexico could spend its stabilization fund entirely so once the resources are gone, it is almost a fact that the government won't have other options to soften economic contraction and the only option left will be to increase its external debt. It is urgent to strengthen the finances through the collaboration with state governments, in order to improve tax collection at every level.


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