November 27, 2018 / 10:24 PM / 16 days ago

UPDATE 2-IMF trims Mexico credit line, welcomes new government's fiscal targets

(Adds comments from incoming president)

By Sharay Angulo

MEXICO CITY, Nov 27 (Reuters) - The International Monetary Fund (IMF) on Tuesday reaffirmed Mexico’s access to an emergency credit line, even as it trimmed the amount, and said the incoming leftist government had promised to stick to prudent economic policies.

The IMF said in a statement that Mexico continued to meet the metrics of fiscal responsibility needed to qualify for the emergency credit line, which Latin America’s No. 2 economy could tap in case of extreme financial market stress.

The IMF said it trimmed Mexico’s flexible credit line by $12 billion to $74 billion at the request of Mexican authorities who saw fewer risks after striking a new trade deal with the United States.

The IMF had authorized an $86 billion credit line in November 2017 and the current line applies to the next twelve months. The IMF noted Mexico planned a “gradual phasing out” of the credit line.

Leftist President-elect Andres Manuel Lopez Obrador takes office on Dec. 1, and the IMF said it welcomed the commitment of the incoming government to continue to reduce Mexico’s debt as a percent of its gross domestic product.

Mexico’s financial markets were battered in November amid concerns that Lopez Obrador could steer the country’s economic policy away from the orthodox policies espoused by the IMF.

On Tuesday, Lopez Obrador said in a video that he would fund his development projects, such as a passenger train in the country’s south and a new oil refinery, while respecting “macroeconomic equilibria.”

“The autonomy of the Bank of Mexico will be maintained, we will not spend more than what comes into the public treasury and this will give a lot of confidence to investors,” he said.

On Monday, Lopez Obrador’s pick to run the finance ministry, Carlos Urzua, said he will push for a larger-than-expected primary budget surplus next year as he sought to shore up investor confidence after Mexico’s main stock index fell to its lowest level since early 2014.

Urzua said the government would target a 2019 primary budget surplus of 1.0 percent of gross domestic product (GDP), up from a previously announced target of 0.8 percent of GDP.

The IMF noted that the incoming government had committed to keep total public sector borrowing requirements at 2.5 percent of GDP. (Reporting by Sharay Angulo Editing by Leslie Adler)

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