Mexico Debt

Mexico has plent of problems and Mexican debt is one of them. The Mexico debt problem is currently not bad at all, but current and future events could change that quickly.

Mexico Status

The country of Mexico is going through a very rough period in its history. The problems are numerous, but boil down primarily to corruption, narcotic and violence. These three have rendered the government mostly impotent while narcotics gangs battle over turf and kill thousands in horrific ways you would expect to see in a movie. I live in San Diego and used to head down to Mexico frequently. Now, nobody goes down there. It is just too dangerous and that is sad.

Mexico Debt Figures

The fiscal situation in Mexico is actually pretty good at first glance. One might expect the Mexican debt to be huge, but it is not. The current Mexico debt as of 2010 is roughly $189.4 billion. This represents about 41.5 percent of the gross domestic product of the country. This is well within normal range and places Mexico in a solid position when it comes to debt ratings. To put it another way, the United States would kill for such a debt percentage.

The Future - Oil Problem

The future national debt picture for Mexico is not good. The country relies heavily on two industries, tourism and oil production. Tourism has taken a beating with the crime problem, but oil is actually in worse shape. The Mexican oil reserves are dominated by one giant field known as Canterella. The problem is this oil field has peaked. This  means that the amount of oil it is producing is dropping each year by between 8 and 15 percent. This is causing a corresponding drop in revenues.

Oil production makes up about 60 percent of the federal budget for the government in Mexico. A drop in oil revenues must be made up somewhere else. In this case, that will primarily be through borrowing more money on the bond market. This will add to the national debt and it will happen quickly. Mexico is going to have to face this problem head on and figure out how it is going to wean itself off of oil revenues before the impact becomes disastrous. Fortunately, the country has time to do this, but it needs a plan in place now.

The current Mexico debt level is very reasonable at this point in time. Unfortunately, the future is not so bright. If the country can get a plan in place to make a transition off of oil now, the change can happen smoothly. If not, it could be fairly ugly.

<< National Debt of Other Countries

Bookmark this page

Delicious Digg Facebook Reddit Stumbleupon Twitter