Economics and Finance, Latin America

So you’re gonna pay for that, right?

There is one aspect of the Great Wall that’s worth considering. 

Certain people have mentioned that we ought to build a wall with Mexico to alleviate our illegal immigration problem. First, this:

One of my thoughts when it was first suggested was, Can Mexico, which is struggling to reduce violence in areas ravaged by cartels, afford to pay for said wall? (Full disclosure: I’m not interested in whether this proposal would work. I’m more interested in how Mexican public finance is doing.)

First of all, the cost of the wall. Just building it, media estimates say, could cost up to $25 billion, and that doesn’t count maintenance or the agents to patrol it.

Now for whether the government could actually finance it. Let’s look at the Mexican government’s budget data. For whatever reason, the IMF didn’t have expense and revenue data when I looked for it (it may not be up to the Fund’s standards). Instead, let’s use estimates from the CIA World Factbook:

Country
Revenues
($million)
Expenditures
($million)
Deficit
($million)
Deficit/
surplus (%)
Date
 Mexico 299,600 340,600 −41,000 -13.7 2014 est.

So in 2014, the government spent about $340 billion with a budget deficit of $41 billion, or 3% of GDP. (By comparison, U.S. expenditures were $3.5 trillion with a deficit also about 3% of GDP.) So we would be asking Mexico to nearly double its 2014 budget deficit to build a wall.

Mexico’s national debt to GDP is around 40%, which isn’t that bad considering the range of some countries (the U.S. is at 90%; Japan is at like 200%); it is comparable to other developing nations like China and the Philippines. But a $25 billion project, assuming it was entirely financed by borrowing, would push that debt up about 2%. The U.S. government, in contrast, spent $37bn just in one day.

And this is omitting the myriad of problems Mexico is facing currently. On the budget side, the country is in big trouble over falling oil prices:

amid falling oil prices, Mexico’s main budgetary problem, the government announced a pre-emptive 124bn peso austerity drive in January. However, Mexico still needs to find 97bn pesos [currently $5 billion] of cuts…

And then there’s the prospect of slowing GDP growth:

[The finance minister] said the budget estimated 2016 growth at 2.6 per cent to 3.6 per cent, although that could change depending on how the international economy performs.

Finally there is the growing violence, for which the government will need to pay for more law enforcement:

mexico_homicides.png

So disregarding any discussion of whether’s it’s fair to make Mexico to pay for this glorious project, I think it’s safe to say we probably can’t expect them to pay for it even if they wanted to…and they definitely don’t want to.

that_fuckin_wall.PNG

I think we’d rather they spend the money on fixing their own problems, including the violence and economy that send them northward in the first place.

Lastly, can we take a moment to appreciate that the Bank of Mexico goes by “Banxico”?

banxico

 

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