The Inter-American Development Bank today announced the approval of $800 million in financing to strengthen the autonomy and administrative and management capacity of state and municipal governments in Mexico. The financing is the largest ever for a single operation by the IDB in Mexico.
The resources will support national policy reforms to improve administration and local government capacity in two areas: the system for transferring federal funds to state and municipal governments, and the credit market that provides financing for local public investments.
The IDB resources will support the introduction of a newly introduced budgeting mechanism that will strengthen the autonomy of local governments and provide them with greater resources. The regulatory framework will be modernized to establish a more transparent and reliable system of guarantees for the federal revenue-sharing program.
The program also includes a line of credit, to be administered by Banobras, to support investments by states and municipalities and to encourage local governments to adopt sound financial management practices.
Banco Nacional de Obras y Servicios Públicos, SNC, (Banobras) the public source of credit for local governments, will be modernized and strengthened.
The total cost of the program is $1.2 billion. The IDB will support the policy reform component of the program with a fast-disbursing loan of $400 million, which has a 15-year term and a five-year grace period. In addition, the Bank will provide a $400 million line of credit, with a 25-year term and a four-year grace period, to support the investment operations that will assist municipalities and states in carrying out the program.
The Bank’s variable interest rate, now 6.84 percent, will apply to both loans.
Local counterpart funds total $400 million.