Entities affected by gasoline subsidies

The increase in 2018 fiscal incentives granted by the Ministry of Finance and Public Credit to the Special Tax on Production and Services (IEPS) for gasoline is a credit factor negative for states and municipalities.

In the report on regional and local governments, the agency says that 43 percent growth in the amount of stimulus to smooth fuel price increases will limit the dynamics of untagged federal transfers (equity).

] Explain that these resources consist of several federal taxes that include the IEPS for gasoline and are one of the main sources of revenue for the country's local governments.

"The secretariat said in its semiannual budget report that stimulation of the IEPS for the sale of fuel and diesel in 2018 will increase to 107,800 million pesos (5,400 million) in response Increased prices of crude oil worldwide and the depreciation of the Mexican peso, which has driven up the price of imported fuels, "says the agency.

"In the first five months of 2018, IEPS revenues for gasoline were distributed.States through holdings had a decline of about 8% over at the same period of the previous year .As a result, IEPS earnings decreased to 3.7% of total revenue in the General Shareholder Fund during the period, compared with 4.2% l. previous year, "the report reads.

Moody's ensures that the existence of subsidies in 2018 are also negative for local governments, as they indicate that the federal government continues to delay the full liberalization of gasoline prices, which would provide a flow of revenue to the entities and their territorial demarcations.

"Petrol prices were expected to be fully liberalized this year." The IEPS represents a fixed quota for every liter sold, but tax stimuli continue to grow. be granted, so that the revenue stream will remain volatile in the shareholders' fund.With the extension of the fiscal stimulus to the IEPS in 2018, the benefits for the states and municipalities will be reduced ", explains -t it.

According to the agency, general shareholders' fund resources grew by 4% at the nominal annual rate between January and May of the current year, compared to 11% in the same period of 2017, because of a combination of lower income from the IEPS and other factors, including a deceleration of income tax recoveries. they account for about one-third of the average total income of Mexican states, and lower growth will affect financial performance and may increase liquidity pressures in the sector, "he says.

Funding

The rating agency estimates that the financial needs of the states will increase slightly in 2018, which will result in moderate financial deficits equivalent to -1.5% of the

Similarly, he adds, the liquidity remains the same. One of the main credit challenges for local governments, whose average level of cash is equal to 0.65 times the current liabilities at the end of 2017, that is to say, more and more ready in the short term to cover liquidity deficits.

"Lower income growth can also influence debt service coverage levels for Mexican-backed loans, 98% of which are equity-backed, with strong equity growth in 2017 debt service coverage rates at a high level, "states the report

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