President Enrique Peña Nieto enacted the Law on Financial Discipline of States and Municipalities. It has two objectives: reduce the cost of funding responsible local governments; and reduce debt, by promoting financial discipline in states and municipalities.

"With this new system, the country reaffirms its commitment to macroeconomic stability and the responsible management of public finances.”

This is the result of the decision and determination of the various actors and political forces, to maximize the benefits of financial discipline, now at the local and state levels.

Actions

At the beginning of this Administration, a rapid increase in the debt of certain states and municipalities was observed. For example, during the period 2008-2013, its real average annual growth was 14.5%.

Faced with the risk that this situation could affect the financial stability of the country, the government promoted a preventive proposal to address it decisively and effectively.

Agreements were constructed and different voices were heard to establish proposals in a responsible, balanced manner.

This law has its origins in one of the 13 presidential decisions announced on the first day of the current government and was subsequently included as one of the Pact for Mexico commitments.

As a first step, a Constitutional Reform was passed to give legislative powers to Congress in budgetary matters and debt for states and municipalities. This reform was approved, and entered into force on 27 May, 2015.

As a result of this amendment to the Constitution, the Mexican State is now obliged to ensure the stability of public finances in the country, including its states and municipalities, as well as Mexico City.

A second step was to develop a proposal that will provide state and local governments with a regulatory framework to ensure sustainable local public finances with greater transparency as well as lower costs when debt is contracted. This measure was submitted to Congress on August 19, 2015.

After extensive, positive legislative work and consensus building, this law has been enacted today, which will transform the fiscal, financial and budgetary performance of state and municipal orders of government.

The lawmakers improved this bill in the following key areas: the requirements for contracting public debt; the definition of productive public investment; the creation of a natural disaster fund by state; and the modification of the Net Financing Ceiling, depending on the level of debt and the financial capabilities of public organizations.

“Today we achieved a major step forward in the law, which provides favorable conditions for economic growth and job creation. Because ultimately, stability is a prerequisite for Mexico to continue advancing firmly and positively.”