Home Impact producer EXCLUSIVE Oil revenue to pay for fuel subsidy in Mexico, senior official says

EXCLUSIVE Oil revenue to pay for fuel subsidy in Mexico, senior official says

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Mexico’s Deputy Finance Minister Gabriel Yorio is seen during an interview with Reuters at the National Palace in Mexico City, Mexico September 9, 2020. REUTERS/Henry Romero/File Photo

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MEXICO CITY, April 1 (Reuters) – Mexico will use the extra revenue it receives from higher oil prices to subsidize domestic gasoline and diesel prices, the deputy finance minister told Reuters on Friday. Gabriel Yorio.

Although production has fallen significantly in recent years, Mexico remains a major oil producer and exporter.

Without the fuel subsidy, annual inflation, which hit 7.29% in the first half of March, would exceed 9% in four months, Yorio said in an interview at his office in downtown Mexico City. .

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“I think pretty much all of the surplus that will be generated from higher prices will also flow into the cost of gasoline,” he said. “So we’re literally going to have to use the surplus to fund the additional grants.”

Mexican motorists have been largely shielded from sharp fuel price spikes in recent weeks due to the subsidy policy championed by the government of President Andres Manuel Lopez Obrador, which has long promised to insulate consumers from steep price increases at the pump.

The Bank of Mexico has raised its key rate seven times in a row during its monetary policy meetings in an attempt to contain inflation. The central bank’s target is 3% inflation with a tolerance band of 1 percentage point above and below. Read more

“What we have calculated is that over a period of four months this measure avoids two points of inflation. In other words, if over these four months annual inflation is around 7% more or less, it keeps it from going up to 9%,” Yorio says.

Mexico’s government is just the latest in the world to try to cushion the impact of soaring fuel prices following Russia’s invasion of Ukraine and one of the few to have the luxury of revenue additional tankers to help fund these grants.

Governments from Brazil to France are considering increasing subsidies or cutting taxes to protect consumers from the financial pressure of rising fuel prices, reflecting the economic and political risks governments see in the current energy spike. Read more

Yorio said investors’ view of Latin America, and Mexico in particular, has improved amid the fallout from the war, as the region is considered far removed from the conflict.

At a recent road show in New York and Europe, investors expressed interest in buying more Mexican debt, but Yorio said the Mexican government has no plans to issue additional bonds denominated in dollars or euros this year.

He added that Mexico will likely issue debt to Japan for refinancing purposes.

“At some point this year we’ll probably go into the samurai market because we haven’t done it for two years and we have write-offs coming in yen.”

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Reporting by Anthony Esposito; Editing by Christian Plumb, Edwina Gibbs and William Mallard

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