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IDB supports Mexico´s economic recovery and fiscal sustainability with $1 billion loan

The Inter-American Development Bank today approved a $1 billion loan to support the consolidation of Mexico’s fiscal sustainability as well as its economic recovery.

The approval of the “Program to Support the Consolidation of Fiscal Sustainability” is a recognition of the policies undertaken by Mexican authorities to mitigate the impact of the international financial crisis on the economy, strengthen national public finances and improve the quality of fiscal management.

During 2009 the Mexican economy suffered its worst contraction since the 1930s, due to its close integration with international financial markets and the sharp drop in exports. This caused a sharp decline in fiscal income, both from taxes and from petroleum activity. Additionally, beyond the impact on public finances caused by the financial crisis, the drop in hydrocarbon production will limit oil income over the mid-term.

In this context, the government of Mexico has adopted an economic program that on one hand seeks to maintain a counter-cyclical stimulus between 2010 and 2012 and, on the other, consolidate the sustainability of public finances. At the same time, authorities have been implementing a package of measures to improve the effectiveness, efficiency and transparency of fiscal management.

The IDB loan helps the Mexican government in four areas:

  • Ensure the macroeconomic and financial stability, and simultaneously sustain a fiscal stimulus with a counter-cyclical policy that shores up the economy’s recovery;
  • Increase fiscal income through the tax reform approved at the end of 2009, and through a continued modernization of the tax and customs administration;
  • Reduce fiscal vulnerability through fiscal rules and budgetary responsibility that protect public finances from fluctuations in oil prices and natural disasters; and
  • Improve the quality of fiscal and financial management through the implementation of a homogenous government accounting system at the three government levels, and the creation of a Single Treasury Account.

The program is a policy-based loan (PBL), with resources to be disbursed in a single tranche. The LIBOR-based loan has a 20-year amortization period and five-year grace period.