Household debt

The financial position of households[1] in Mexico has maintained a growing trend in recent years. As of June 2018, the increase registered in the last 5 years represented 5% of the GDP, with a similar growth in savings, both voluntary and mandatory. This result occurred during the same period in which the indebtedness of households also increased by 2% of the GDP, driven mainly by the expansion of credit to consumption and financial inclusion (Banco de México, 2018).

As financial inclusion increases in Mexico, household debt[2] has increased in the past decade. According to data from the Central Bank, household debt reached 16% as a proportion of Gross Domestic Product (GDP) in 2018. This represents the highest level since the beginning of recording this information in 1994. In contrast, in 2000 one of the lowest levels of household debt in recent years were reported at 8% of total GDP (Banco de México, 2018).

Regarding household debt in 2018, approximately 60% of the total financing received corresponded to mortgage loans and 40% to consumer credit. Most mortgages are granted through the two main social security institutions’ housing institutions INFONAVIT (for private sector workers) and FOVISSSTE (for public sector employees). These two institutions granted 64.9% of all mortgages, followed by banks with close to 34% of the total. In terms of total consumption and debt/credit, credit cards represent the most frequent source of consumer credit. By June 2018, 17.4 million people in Mexico had at least one credit card. This number is 3.4% higher than the number of people with at least on credit care in the same month in 2017 (Banco de México, 2018).

While household debt has increased over the past decade, it is not considered to a high risk as it is thought that this occurs in an environment where household income has improved because of real wage recovery and higher employment.

Public Debt

Between 2012 and 2018, the growth of total foreign debt, has been very important and reflects a difference of 9 percentage points of GDP, increasing from 28% to 37%. As a percentage of GDP, total external debt in 2018 is very similar to that of 1996, which was the year of the last major financial crisis experienced in the country. Of the total external debt in 2018, which amounted to 446 million US, 306.4 million USD (26% of GDP) are public external debt (publicly/government guaranteed), and 139.7 million USD (12% of GDP) are private sector external debt (not guaranteed by the government). For that same year, the level of international reserves reported by the Central Bank was 176,648.6 million USD and total revenue from exports was 450,572.2 million USD (Banco de Mexico, 2018; Secretaría de Hacienda y Crédito Público, 2018, 2019).

In terms of monetary data (balance of public debt), by end of February 2019, the Historical Balance of the Requirements of the Public Sector Finance (SHRFSP) amounted to 10,499,200,000 pesos. The internal component of the SHRFSP was located at 6,725.1 thousand million pesos, while the external component were 3,774.1 million pesos. Net debt of the federal public sector (Federal Government, State Companies, and development banking) at the end of February 2019 stood at 10 trillion 815.7 pesos.

[1] Calculated as financial assets minus received credits as proportion of GDP.

[2] Defined as the total outstanding debt of households to banks and other financial institutions as percent of GDP.

References:

Banco de México. (2018). Mercado cambiario, tipo de cambio, Banco de México.

Secretaría de Hacienda y Crédito Público. (2018). Informes sobre la situación económica, las finanzas públicas y la deuda pública. Cuarto trimestre 2018.

Secretaría de Hacienda y Crédito Público. (2019). Informes de la situación de las finanzas públicas y la deuda pública. https://www.finanzaspublicas.hacienda.gob.mx/es/Finanzas_Publicas/Informes_al_Congreso_de_la_Union