Mexico runs out of savings to compensate for missing income

In 2022 and 2023, the accumulation of the FEIP for each year was close to 15,000 million per year, but, by 2024, the accumulation of the fund is reduced to around 9,000 million, explained José Luis Clavellina, Research Director of the Center for Economic Research and Budgetary (CIEP).

“If this is going to be the rate of accumulation of the fund, it will take longer and when there is some crisis, some slowdown, we will have fewer resources with which to compensate for the lack of income,” added the researcher.

The costs of activating them

The use of the FEIP is essentially for missing revenue from the federal government. If it does not have funds, the public sector has two options: spending cuts or incurring debt. Any option has its implications. Cutting can mean a deterioration in the quality of public services, while the debt increases the fiscal deficit, which is under the scrutiny of credit rating agencies, Cernichiaro explained.

Considering the heavy dependence of state and municipal governments on federal revenues, they would also see greater pressure to cut spending or resort to debt. “This FEIEF is to compensate the income that the states have from participations; If these resources are lacking, the population would be affected, since the majority of these resources go to current spending, to the payment of pensions from the state systems or even for expenses such as paying for electricity,” explained the UAM researcher.

Díaz considered that, depending on the financial health of each state, the possibility of resorting to debt opens up. “Those who rely more on federal revenue could be affected a little more,” he added.

According to the IMCO, Mexico City, Chihuahua and the State of Mexico are the entities that generate the most own income. In contrast, Hidalgo, Oaxaca and Guerrero are the three states most dependent on federal transfers.