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LatAmOil MEXICO LatAmOil

Mexico’s government began paying direct fuel subsidies in March (Image: Informador)

Bloomberg Economics: Mexican subsidy

costs rising faster than oil export earnings

MEXICO’S oil export earnings have risen sig- “The cost for the government [of the subsidy
nificantly this year as a result of bullish trends programme] has sharply increased and recently
on world crude markets, but the upswing has accelerated, driven by international oil prices
not been large enough to compensate for the and the diminishing appetite to accommodate
rise in domestic motor fuel subsidies, according additional price increases,” he commented.
to estimates made by Felipe Hernandez, a Latin “In March, the government started providing
America analyst for Bloomberg Economics. a direct subsidy on top of the foregone taxes
Hernandez said earlier this week that Mexi- that was the initial mechanism to smooth price
co’s national oil company (NOC) Pemex was on adjustments.”
track to collect $1.04bn in excess profits from Mexico’s government has been taking all
crude exports in May. This is less than half of these steps at the behest of President Andres
the sum projected for gasoline and diesel subsi- Manuel Lopez Obrador, who has pledged to
dies, which are expected to total $2.39bn in the keep domestic fuel price hikes below average
same month, so the Finance Ministry will have inflation rates. The president has been hard-
to cover the remaining $1.35bn, he commented. pressed to uphold this promise to voters in light
When contacted by Bloomberg, the Finance of this year’s oil price rises and Mexico’s contin-
Ministry declined to comment on the matter. ued dependence on imported fuel, despite its
The news agency noted that Rogelio Ramirez status as a producer of crude.
de la O, the head of the ministry, had asserted Even so, Lopez Obrador spoke up in defence
in March that Mexico City had the capacity to of his subsidy policy on June 1, saying at his
keep fixing motor fuel prices far below market daily press conference in Mexico City that he
level even if world prices climbed because of the saw the artificially low prices as a means of
rise in crude prices. keeping money circulating within the local
For his part, Hernandez noted that the Mex- economy. “Instead of considering that we lose
ican government had been under increasing with this subsidy, we think that we win because it
financial pressure since March, despite its con- strengthens the popular economy,” he asserted.
fidence in the positive momentum generated “The excess being obtained because of the high
by bullish trends on world crude markets. He oil prices helps compensate [for] the subsidy.”
referred to Mexico City’s decision to introduce a Elizabeth Garcia Vilchis, a member of the
policy of direct subsidies as of March 5, explain- president’s press team, claimed at the same press
ing that this move outweighed the windfall conference that extra oil revenues were sufficient
receipts generated when world oil prices topped to cover the cost of the motor fuel subsidies.
the $55 per barrel baseline figure from the 2022 Bloomberg quoted her as saying that Mexico
budget. City had spent $4.4bn to keep gasoline and die-
This compounded the impact of a move to sel prices artificially low in the first four months
expand temporary exemptions from the IEPS of 2022, less than half of the total amount of
excise tax on goods and services, he explained. $8.9bn earned from oil export revenues. ™

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