In recent days, the depreciation of the Mexican peso against the U.S. dollar has significantly impacted the financial landscape, particularly concerning Mexico’s national debt. According to estimates by the Ministry of Finance and Public Credit (SHCP), the financial cost of the Mexican debt, including interest payments and related services, increases by 2.8 billion pesos for every 20-cent depreciation of the peso against the dollar.
Economic Forecast and Current Exchange Rate Trends
In the General Criteria for Economic Policy 2024, the SHCP projected that the exchange rate would close at 17.6 pesos per dollar by the end of the year. However, recent global market fluctuations, including the collapse of the Japanese market and other stock exchanges, have led to a significant depreciation of the peso. This volatility has seen the exchange rate spike to as high as 20 pesos per dollar, a level reached last Sunday night.
The depreciation of the peso has broad financial implications. An appreciating peso generally reduces oil revenues since a substantial portion is tied to crude oil exports. Conversely, a stronger peso also reduces the financial cost by decreasing the peso value of foreign-denominated debt. However, the recent depreciation could see the financial cost surpassing the approved amount for the year, which is 1 trillion 264 billion pesos, potentially increasing by 33.8 billion pesos.
Impact on Debt and Public Sector Requirements
Jorge Cano, a researcher at México Evalúa, emphasized that the peso’s depreciation affects not only the debt’s financial cost but also the Historical Balance of Public Sector Requirements (SHRFSP), representing the debt in its broadest sense. As a portion of the country’s debt is contracted in dollars, a weaker peso increases the outstanding balance, potentially affecting the debt-to-GDP ratio.
Cano noted that prolonged market volatility could pose challenges for the incoming administration of Claudia Sheinbaum, especially given the limited fiscal space to implement public policies and the absence of a tax reform to bolster government revenues.
Potential Revenue Gains
Despite the challenges posed by the peso’s depreciation, there are potential benefits for public revenues, particularly from oil exports and Value Added Tax (VAT) collection on imports. James Salazar, deputy director of economic analysis at CIBanco, highlighted that the government could see increased revenues from oil, sold in dollars by the barrel. Additionally, the depreciation could boost VAT revenues from imports.
Salazar predicted that the peso would face further pressure in September and October due to uncertainty over pending constitutional reforms. However, he anticipates stabilization in November, with the peso potentially reducing losses by December. He estimates the exchange rate could settle at around 18.50 pesos per dollar by the end of the year.
In recent days, the depreciation of the Mexican peso against the U.S. dollar has significantly impacted the financial landscape, particularly concerning Mexico's national debt. According to estimates by the Ministry of Finance and Public Credit (SHCP), the financial cost of the Mexican debt, including interest payments and related services, increases by 2.8 billion pesos for every 20-cent depreciation of the peso against the dollar.
