Home Headlines Mexican government announces biggest budget gap in 36 years

Mexican government announces biggest budget gap in 36 years

by Yucatan Times
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Mexico’s government said the fiscal deficit will widen next year, the final of the administration of President Andres Manuel Lopez Obrador, as it expands support for Pemex and social programs ahead of general elections.

Mexico will post a fiscal deficit equivalent to 4.9% of gross domestic product in 2024, compared to an estimated 3.3% this year, the Finance Ministry said in a budget proposal sent to congress on Friday. On a primary basis — subtracting debt payments — Mexico will move from a 0.1% surplus to a 1.2% deficit next year, the draft says.

The budget for Petroleos Mexicanos, as the state-owned oil producer is formally known, assumes a financial surplus of 145 billion pesos ($8.2 billion), according to the proposal, which has to be discussed and approved by congress.

The decision to significantly expand the deficit breaks with the prudent fiscal approach by Lopez Obrador’s administration since he took power in late 2018, including not granting significant stimulus support during the pandemic. AMLO, as the president is known, ends his term in about a year and his party’s candidate Claudia Sheinbaum is leading polls to succeed him in the June 2 election.

“This increases the probability of a cut in the credit rating of Mexico’s sovereign debt or at least an outlook change to negative, even if not immediately,” said Gabriela Siller, director of economic analysis at Grupo Financiero Base, adding that a 4.9% deficit would be the largest budget gap for Mexico since 1988. “They are leaving a time bomb for the next administration.”

Read More: Mexico’s AMLO Supports Sheinbaum as Morena Presidential Pick

According to the budget proposal, Mexico stands to grow between 2.5% and 3.5% this year and next. The country’s benchmark interest rate is expected to remain at the current 11.25% by the end of 2023 before falling to 9.5% in December 2024, the document says.

“Social investment, the conclusion of projects that spur physical investment and the recovery of the purchasing power of the salary are the priority,” Finance Minister Rogelio Ramirez de la O said while presenting the proposal to lawmakers in Mexico City.

The debt-to-GDP ratio is expected to grow to 48.8% next year from an estimated 46.5% in 2023, the Finance Ministry also said, adding that the indebtedness would have grown 5.2 percentage points since the start of the Lopez Obrador administration. That ratio is “sustainable” and better than at the end of previous administrations, it added.

“The government is using the fiscal space it didn’t use during the pandemic to end the administration on a high note and guarantee that there is an economic boost,” said Marco Oviedo, a strategist at XP Investimentos. “The challenge for Pemex is reaching a balanced budget.”

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