By Anthony Harrup 

MEXICO CITY -- The Bank of Mexico said Wednesday that it transferred 321.7 billion pesos ($17.1 billion) to the federal government in excess funds from its operations in 2016, which the finance ministry said will be used to strengthen public finances.

Any money that the Bank of Mexico has left over from its operations is by law transferred to the treasury as extraordinary revenue, since the central bank is a nonprofit institution.

The bank makes money on foreign reserves when the national currency depreciates. The peso fell around 17% against the dollar last year, while Mexico's foreign reserves ended the year at $176.5 billion. Reserves are currently at $175 billion.

The central bank applies some of the money it makes to its capital reserves and to protect against the opposite impact from any appreciation of the peso.

The amount is above the 239 billion pesos that the central bank transferred to the federal government in 2016, most of which was used by the government to buy back debt and reduce planned public-sector borrowing.

The money received this year, which is equivalent to about 1.5% of gross domestic product, will be reflected in an improvement in public debt-to-GDP, the finance ministry said, adding that at least 70% will be used to pay federal government debt or reduce borrowing, and the rest for budget stabilization funds.

Rising public debt, which reached 50% of GDP in 2016, partly as a result of the drop in world oil prices that cut into government revenue, led the three main ratings firms to change their sovereign outlook for Mexico to negative from stable and raised concerns about a possible downgrade.

The 2017 budget calls for a small primary surplus this year, excluding debt payments, the first in almost a decade. The surplus is a step toward stabilizing and later reducing public debt-to-GDP.

Bank of America Merrill Lynch expects the government to meet the primary surplus goal of 0.4% of GDP, but "without a significant reduction in public expenditure" since much of the improvement in public finances will come from the Bank of Mexico funds.

"We believe a significant fiscal adjustment is due, although we do not expect it during the remaining term of this administration," the bank's chief Mexico economist, Carlos Capistrán, said in a report. The current administration runs through 2018.

Write to Anthony Harrup at anthony.harrup@wsj.com

(END) Dow Jones Newswires

March 29, 2017 15:29 ET (19:29 GMT)