The securitization of federal transfers is the mechanism through which a Mexican state or municipality pledges part of the resources it receives from the General Fund of Transfers (Fondo General de Participaciones) as collateral to obtain immediate financing in the securities market, committing that revenue for years or decades.
What it is and what is at stake
Every month, the Federation transfers to states and municipalities a share of federal collectible revenue through Ramo 28, made up mainly of the General Fund of Transfers. That revenue is freely disposable: in theory, each local government decides how to spend it. Securitization partially breaks that freedom at the source: the state or municipality authorizes, through a decree of its local Congress, a trust to automatically withhold a fixed percentage of those transfers each month, and with that guaranteed flow it issues trust securities (certificados bursátiles fiduciarios) placed among investors on the Mexican Stock Exchange. In exchange, the government receives up front the money equivalent to the present value of those future flows, which it normally allocates to public works, paying suppliers, or restructuring prior liabilities.
The instrument is not marginal. According to a note from the Center for Public Finance Studies (Centro de Estudios de las Finanzas Públicas), the amount that may be pledged as collateral or payment source must not exceed 25% of the transfers of the immediately preceding fiscal year, unless the obligation was contracted with a different percentage in the year of origin. That figure sets the legal ceiling, but it does not prevent a very significant share of a local government's free revenue from being tied to debt payments before it reaches the treasury, once various outstanding commitments are added together.
How it works and how it came to be used this way
The legal basis is Article 9 of the Fiscal Coordination Law, which in principle declares the transfers of states and municipalities immune from attachment, but exempts the General Fund of Transfers and the Municipal Development Fund from that protection: those resources can indeed be pledged as collateral or as a payment source for financial obligations, provided there is authorization from the local legislature and the financing is registered in the Public Registry of Financings and Obligations (Registro Público Único), administered by the Ministry of Finance and Public Credit (Secretaría de Hacienda y Crédito Público) under the Financial Discipline Law for States and Municipalities. Permitted creditors are the Federation, credit institutions operating in the country, and Mexican natural or legal persons.
One case illustrates the full mechanics, from issuance to extinction. In 2008, 199 municipalities in Veracruz entered into a structure of this kind for just over 1.2 billion pesos, with a trust that automatically withheld around 7.54% of their transfers each month to pay the debt until 2036. According to the state government, cited by El Financiero, by 2026 those municipalities had already paid close to 2.6 billion pesos, but almost all of it had gone to interest and financial expenses, so the outstanding balance still stood at around 1.5 billion. Adding what was paid and what remained, the total cost of the structure would have exceeded 4.8 billion pesos for original financing of barely 1.2 billion. That same instrument, identified in the market as VRZCB 08, was rated by HR Ratings and at one point carried the HR AA+(E) rating; on August 5, 2026, the rating agency withdrew the rating after confirming, according to the notice published on the Mexican Stock Exchange website, that the issuance had been fully, voluntarily and early amortized within a financial cleanup program backed by the state government.
Why it matters for Mexico
The mechanism directly affects the spending capacity of subnational governments, which rely on transfers to fund payroll, security and basic services. When a percentage of that revenue is committed to a trust for decades, that margin is no longer available to the administrations that govern after the one that signed the original structure, even if spending priorities or the economic conditions of the state or municipality change. That is why the Financial Discipline Law for States and Municipalities, in force since 2016, requires these commitments to pass through the local Congress and be recorded in the Public Registry of Financings and Obligations: the stated intent of the legal framework is to give traceability to a practice that, before that law, operated with less transparency toward citizens and toward the Ministry of Finance itself.
The scale of the phenomenon is also relevant. Using data from the Ministry of Finance, the Center for Public Finance Studies reported that by the second quarter of 2018 the national average of transfers pledged as collateral had reached 62.8%, and that Mexico City had committed all of its own. Those figures do not distinguish between securitizations and other forms of debt secured by transfers, such as direct bank loans, but they show that pledging this revenue to obtain immediate liquidity is a widespread practice among state and municipal governments, not an isolated case.
What comes next
The Veracruz case shows where structures of this kind can head when the accumulated financial cost becomes hard to sustain: the state government projected that, once the rescue process for the 2008 structure was completed, the 199 municipalities involved would receive their federal transfers in full starting in August 2026, almost ten years before the original 2036 maturity. That kind of renegotiation, in which the state assumes part of the outstanding balance and the municipalities settle the rest over a shorter term, is one of the routes other governments with long-duration securitizations could explore if they face similar pressure.
Looking ahead, three signals are worth watching. First, the reports of the Public Registry of Financings and Obligations and of the Ministry of Finance's Alert System, which show entity by entity what percentage of transfers is committed. Second, the actions of rating agencies such as HR Ratings or Fitch Ratings on issuances backed by transfers, which tend to anticipate refinancings or early amortizations. Third, new local legislative authorizations to pledge transfers, which would indicate whether the instrument is still being used despite the known cases of high accumulated financial cost.
Frequently asked questions
**What exactly is a securitization of federal transfers?** It is the issuance of securities in the stock market, backed by a percentage of the Ramo 28 transfers that a state or municipality receives, administered by a trust that withholds that percentage each month to pay investors.
**What is the General Fund of Transfers?** It is the main component of Ramo 28, the fund through which the Federation transfers to states and municipalities a share of federal collectible revenue, as freely disposable income.
**Is there a legal limit on how much can be committed?** Yes. According to a note from the Center for Public Finance Studies, the pledge as collateral or payment source must not exceed 25% of the transfers of the preceding fiscal year, except for the percentage agreed in the original year of contracting.
**What changes when a securitization is extinguished?** The trust stops withholding the committed percentage and the local government again receives its transfers in full. In Veracruz, the state government projected that this would happen starting in August 2026 for 199 municipalities, almost ten years before the original 2036 maturity.
This note was drafted with the assistance of artificial intelligence from verified sources and reviewed by a human editor before publication.