Why Mexico's current account deficit is climbing...

In Mexico, the trade account deficit typically drives the growth of the current account deficit. That has not been the case for the last three years, years in which the current account deficit grew significantly.  Climbing factor services payments (principally interest payments and remitted or reinvested profits) explain the jump in the current account deficit. 

In 2013, the deficit in the factor services account was US$41.4 billion, 35.0% higher than in 2012. Between 2008 and 2010, outflows for factor service payments averaged US$15.8 billion annually. Between 2011 and 2013, the annual average jumped to US$24.8 billion. 

The upward trajectory of the current account deficit over the last three years serves as a reminder of how easily a jump in factor service payments, helped along by a reduction in oil export revenues and remittances, can transform a minimal current account deficit into a not so minimal one. 

While we expect Mexico’s current account deficit to rise from 1.8% of GDP last year to 2.2% this year and 2.5% next, foreign direct investment (FDI) should come close to covering the entire current account deficit – provided that the reforms passed last year are implemented in the ways we hope. Both this year and next, the projected deficit remains below the 3% of GDP that is the upper limit of what is considered to be a safe level for developing countries.