Mexico gets a new, smaller and flexible $61bn IMF credit line

The International Monetary Fund (IMF) on Monday said its executive board approved a smaller two-year lending arrangement for Mexico worth $61bn, replacing the country’s current flexible credit line of about $74bn.

The IMF said the new arrangement would bolster market confidence at a time when trade uncertainty, a sharp pullback in capital from emerging markets and increased risk premiums posed continued external risks to the Mexican economy.

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The Mexican government intended to continue to treat the arrangement as “precautionary” and planned to request further reductions in the credit line as external risks receded, IMF Deputy Managing Director David Lipton said in a statement.

Mexico’s economy has been buffeted by uncertainty over the past three years due to the threat of trade wars with United States President Donald Trump, and the credit line is viewed as an important stabiliser for its financial markets.

Mexico’s finance ministry applauded the arrangement.

“The decision of the (IMF’s) executive board underscores that Mexico continues to meet all the qualification criteria needed to access if required and without any conditions, the resources available through this instrument,” it said.

The IMF’s new managing director, Kristalina Georgieva, said last month the organisation would remain a “strong partner” of Mexico, following meetings with the heads of the Mexican finance ministry and central bank.

The IMF has recommended Mexico reconsider its position of limiting private companies’ cooperation with state-owned oil company Pemex, whose debt is weighing heavily on the government’s finances.

Mexico’s previous arrangement was approved in 2017 for about $86bn but was scaled back to $74bn in 2018 at the request of the Mexican authorities.

In his statement, Lipton lauded the Mexican government’s efforts to set strong fiscal policies that stemmed from the rise in the country’s public debt ratio, and a very tight monetary policy that helped reduce inflation.

He said financial supervision and regulation were strong, and the flexible exchange rate of the Mexican peso was playing a key role in the economy’s adjustment to external shocks.

But he warned the economy still faced external risks, including volatility in global financial markets, increased risk premiums, reduced capital inflows and continued uncertainty about Mexico’s trade relations with the US.

The US Congress has not yet ratified a new trade agreement to replace the current $1 trillion North American Trade Agreement (NAFTA) among the US, Mexico, and Canada, and it appears that ratification may slip to next year.