That state and municipal debt is NOT included in the public sector debt to GDP ratio published by Hacienda wasn't an issue for decades. When states started to borrow against the monies they receive from the federal government in the form of participaciones, the story changed. State and municipal debt soared in less than a decade, heading for 3% of GDP.
Armando Rios Piter, the Secretary of the Special Commission for Analysis and Oversight of Public Finances, says that state and municipal debt totals Ps$406.8 billion pesos, most of which has been used to pay for current expenditures. Never mind that such use violates the law, which states that loans can only be used for works that directly increase public revenues. The debt of four states, he says, accounts for a quarter (25.9%) of the total. Nine states have debt that virtually equals or exceeds the participaciones they receive from the federal government. They are: Veracruz (94.5%), Mexico City (96.0%), Sonora (97.6%), Michoacan (98.7%), Nayarit (111.8%), Chihuahua (118.4%), Nuevo Leon (165.9%), Quintana Roo (204.2%), and Coahuila (304.6%).
The regulations Rios Piter hopes to see would limit the debt of Mexico's states to their capacity to pay. He also is looking for an authorization process that would start with a request to Hacienda and require authorization by the Senate.
Congratulations to the new Administration for tackling the issue that, if left alone, could become the next fiscal black hole. Limiting states' ability to contract debt as well as bringing greater transparency and accountability to the process is a giant step forward. It also has the political benefit of giving the President more control over governors.
Armando Rios Piter, the Secretary of the Special Commission for Analysis and Oversight of Public Finances, says that state and municipal debt totals Ps$406.8 billion pesos, most of which has been used to pay for current expenditures. Never mind that such use violates the law, which states that loans can only be used for works that directly increase public revenues. The debt of four states, he says, accounts for a quarter (25.9%) of the total. Nine states have debt that virtually equals or exceeds the participaciones they receive from the federal government. They are: Veracruz (94.5%), Mexico City (96.0%), Sonora (97.6%), Michoacan (98.7%), Nayarit (111.8%), Chihuahua (118.4%), Nuevo Leon (165.9%), Quintana Roo (204.2%), and Coahuila (304.6%).
The regulations Rios Piter hopes to see would limit the debt of Mexico's states to their capacity to pay. He also is looking for an authorization process that would start with a request to Hacienda and require authorization by the Senate.
Congratulations to the new Administration for tackling the issue that, if left alone, could become the next fiscal black hole. Limiting states' ability to contract debt as well as bringing greater transparency and accountability to the process is a giant step forward. It also has the political benefit of giving the President more control over governors.
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