Macro Analysis /
Global

Mexico: The IMF renews Mexico’s Flexible Credit Line for a new two-year term

  • On Friday, the Foreign Exchange Commission (FEC) announced that the IMF successfully completed the renewal of the FCL

  • The amount agreed upon stands at close to US$50 billion, continuing with the strategy of gradually decreasing the line

  • The approval, along a healthy buffer of reserves and a solid macro framework keep underpinning Mexico’s policy toolbox

Alejandro Padilla Santana
Alejandro Padilla Santana

Executive Director of Economic Research and Financial Markets Strategy

Contributors
Francisco Jose Flores Serrano
Juan Carlos Alderete Macal
Banorte
22 November 2021
Published by
  • The Foreign Exchange Commission (FEC) and the IMF announced on Friday that the Fund successfully completed the renewal of a two-year arrangement regarding the FCL 

  • The amount agreed upon stands at close to US$50 billion (SDR 35.7 billion), continuing with the previous strategy of gradually decreasing the FCL after a pause last year due to heightened uncertainty 

  • This approval, along a healthy buffer of international reserves and a solid macroeconomic framework continue to underpin Mexico’s policy toolbox

Mexico’s Flexible Credit Line gets renewed by the IMF for two more years. The Foreign Exchange Commission (FEC), composed by officials from the Ministry of Finance and Banxico, announced on Friday that the IMF’s Executive Board has successfully completed a new arrangement regarding Mexico’s Flexible Credit Line (FCL) program. This marks a new two-year term approval, as the last complete revision happened on November 2019 –with the usual 1-year revision taking place on November 2020–. This marks the 9th time the IMF has approved an agreement, spanning a little over 12 years as the first agreement was ratified in 2009. As such, the buffer was set at 35.7 billion Special Drawing Rights (SDR), equivalent to nearly US$50 billion. As has been in previous occasions, government officials stated the intention to treat the arrangement as precautionary. The IMF quotes several factors as being drivers for the renewal, including strong macroeconomic and institutional policy frameworks, a flexible exchange rate regime, credible inflation-targeting framework, and a well-regulated financial sector. 

The policy of reducing the FCL continues after a pause in 2020. Since 2017, the Mexican government started a gradual unwind of the FCL as part of a more efficient asset and liability management from the government. We should recall that this practice was stopped in 2020 amid heightened uncertainty due to the pandemic. Nevertheless, and as the recovery started and policy frameworks have remained resilient, this gives space for the reductions to continue. In addition, statements suggest that this trend should continue in the following years.

The arrangement continues to support Mexico’s policy toolbox. On top of building upon US$198.8 billion in international reserves, this action solidifies Mexico’s external position. In particular, the IMF stated that “…authorities have successfully maintained external, financial, and fiscal stability, despite the pandemic-related challenges…”. However, considering market conditions, the Fund also states that “…the Mexican economy remains exposed to external risks, including from renewed waves of the COVID-19 pandemic, as well as international financial volatility…”. As such, the FCL serves to act as an additional shield in supporting the macroeconomic strategy by the government. We believe this announcement, while expected, further supports the external stance of our country, maintaining its appeal for both FDI and other type of investments.