President Enrique Peña Nieto enacted the Law on Financial Discipline of the States and Municipalities. With this new system, the country reaffirms its commitment to macroeconomic stability and the responsible management of public finances.

The new law has its origins in one of the 13 presidential decisions announced on the first day of his government, and subsequently incorporated as one of the Pact for Mexico commitments.

“Today we achieved a major step forward in the law, which provides favorable conditions for economic growth and job creation.”

With the new law, and amendments to the Fiscal Coordination Law, which is now the Federal Law on Public Debt and the General Government Accountability Law, also enacted today, “The Mexican State has new and better tools to ensure sound public finances, and thus strive to achieve macroeconomic stability for the country.”

The Law of Financial Discipline for States and Municipalities has two goals: lower the cost of funding responsible local governments; and reduce debt, by promoting financial discipline in states and municipalities.

Four advantages:

FIRST. It will allow local public finances to be sustainable in the medium and long term, thanks to the Rules of Financial Discipline and Expenditure. The new regulatory framework requires compliance with balanced fiscal balances; longer-term planning for states and municipalities; and the allocation of surplus revenues to investment projects or the payment of liabilities.

SECOND: With the Warning System established by the Constitution, which this law regulates, citizens will have clear, transparent knowledge of the debt levels of all local public entities that have contracted debt.

Depending on the results provided by this Warning System, Net Financing Ceilings will be set that states and municipalities will be able to access each year, which will strengthen the proper, planned, and of course, responsible management of their debt.

THIRD: This law will reduce the costs of public debt to states and municipalities in two ways: On the one hand, by forcing all debt contracting by local public bodies to be carried out through competitive processes. The bank proposal with the lowest financial cost will be chosen, ensuring compliance with the constitutional mandate.

On the other hand, the law enacted today establishes the requirements and conditions for the government to issue a federal guarantee for the debt contracted by states and municipalities, which will lead to lower financing costs.

In terms of checks and balances, the new legislation provides for increased joint responsibility in the authorization of debt granted by local legislatures to public bodies.

“As stated in the Constitutional Amendment, debt may only be contracted if at least two thirds of the Local Congress approve. To this end, these Legislatures should indicate the destination of the resources and analyze the payment capacity of the public entity.

FOURTH: The new Single Public Registry will make it possible to register and ensure the transparency of all the obligations contracted by local public bodies, regardless of their modality, whether debt, public-private partnerships, short-term debt or others.

In this way, Mexicans will be able to better monitor the use of public resources and have a clear idea of how debt in their state or municipality is invested.

“With the new law, and amendments to the Fiscal Coordination Law, which is now the Federal Law on Public Debt and the General Government Accountability Law, also enacted today, the Mexican State has new and better tools to ensure sound public finances, and thus strive to achieve macroeconomic stability for the country.”