We return to normal life after the two days of patriotic celebrations during which, curiously, the Finance Ministry issued two bond offerings. On the one hand, five billion euros, and on the other, eight billion dollars. Together with the twelve billion dollars obtained through the “Luxembourg” instrument, we are talking about roughly twenty-six billion dollars of federal government debt which, I assume, will be used to cover the payments Pemex cannot make. According to Enrique Quintana’s July 23 column, that is more or less what is needed for this year and the next.
As we’ve already discussed, this debt stems from the decision to refine at all costs, as well as from preventing private companies from extracting oil. Its origin is purely ideological, with no financial or technical basis. The government tries to blame its predecessors, but you already know that is not the case. The problem is that if those decisions are not reversed, Pemex’s money losses will keep growing, and the assumption of debt by the federal government—although ratings agencies may now welcome it for slightly improving Pemex’s position—can very quickly turn into a downgrade of both debts, the oil company’s and the sovereign’s.
It’s important to understand that what the rating agencies are celebrating is that Pemex will pay what it owes between now and the end of 2026. I don’t think they share the Finance Ministry’s optimism that crude oil production will increase next year, but that doesn’t matter to them. As the year goes on, if Pemex’s finances do improve, the agencies will confirm their rating; if things don’t go well, they’ll have time to adjust. They aren’t taking risks.
The ones taking the risks are at the Finance Ministry, and it’s not even clear to me on what legal basis these issuances are being made. In this year’s Revenue Law, they explicitly established that there would be no external financing—in other words, no contracting debt in foreign currency. Yet here we are, with twenty-six billion dollars’ worth, whether in euros, dollars, or financial juggling. Yesterday I tried to verify if there had been a change, but the Ministry’s website was down. Bad luck.
The economic package presented by the Ministry last week confirms that there is a serious financing problem. To avoid running a deficit like last year’s, they have slashed public investment to a historic minimum. They hope to increase it a bit next year, if oil revenues improve, but that depends on Pemex producing more, which in turn depends on the suppliers it hasn’t paid. Without progress on this front, there will be no investment, and therefore little chance of economic reactivation.
On the other hand, the Ministry’s document seems to obscure the flows directed to subsidies and transfers (in other words, vote-buying), which by July of this year amounted to 3.8% of GDP, but which they estimate will close the year at 3.3% and stay there in 2026. It’s not clear how this will happen, and half a point is a lot. It’s more than they expect to increase investment, or than they believe oil revenues will grow.
In the global disaster we are living through—with France in a debt spiral and the United States in clear decline—perhaps the irresponsibility of the past seven years will go unnoticed. For domestic consumption, issuing bonds on patriotic holidays will likely fade from memory. But it does seem to confirm the title of a book from three years ago: On the Precipice.