LatinNews Regional Monitor: Mexico - 18 May 2020

* International credit ratings agency Moody’s Investors Service has warned that rising unemployment will endanger Mexico’s pension funds. According to Mexico’s social security institute (IMSS), 131,000 private sector jobs were lost in March, 555,247 in April, and further job losses are expected in May. Moody’s notes that Mexico’s pension system regulation allows workers who lose their job to redeem from their pension account the equivalent of 30-90 days of their base salary, and the ratings agency expects an increase in these withdrawals to coincide with a decrease in pension contributions as the unemployed stop paying into pension schemes. Although pension funds have liquidity reserves in case of a spike in withdrawals, there is a risk that the expected record number of withdrawals will exceed funds’ estimates. Additionally, many recently unemployed workers may seek work in the informal sector, which will negatively affect the pension system’s growth prospects. Moody’s warns that “in the most severe scenarios, funds could be forced to sell securities in a negative market to raise liquidity”.

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