No stimulus, tight fiscal targets in Mexico's budget

Herrera said a European-style debt driven stimulus would have cost Mexico more in additional interest payments alone than the country’s spending on primary and secondary teachers’ salaries.  — AFP pic
Herrera said a European-style debt driven stimulus would have cost Mexico more in additional interest payments alone than the country’s spending on primary and secondary teachers’ salaries. — AFP pic

MEXICO CITY, Sept 9 — Mexico’s government plans to keep a lid on spending while offering some support for hospitals, pensioners and infrastructure in a lean 2021 budget that forecasts only partial recovery for an economy hammered by the Covid-19 pandemic.

Delivering the budget proposal to Congress, Finance Minister Arturo Herrera said Mexico could ill-afford the kind of government largesse advanced economies had unleashed to recover from coronavirus lockdowns.

“We would like to think there is money for everyone, but that is not the reality we are facing,” Herrera said, comparing the economic crisis to the 1930s Great Depression as he delivered an austere budget proposal to Congress.

Mexico’s budget will be closely watched by ratings agencies who stripped state oil company Pemex of its investment grade this year and have warned Mexico’s sovereign debt could suffer the same fate.

A draft of the budget proposal circulated by members of congress earlier yesterday mentioned some US$2 billion (RM8.34 billion) in transfers to Pemex, including funds for a new refinery, but the shorter final proposal did not appear to mention the transfer.

Overall the budget was tight, in line with President Andres Manuel Lopez Obrador’s view that successive Mexican governments wasted public funds on excess and corruption.

Lopez Obrador is an outlier among both wealthy and emerging nations, insisting on controlling spending even in the face of the economic destruction wrought by coronavirus lockdown.

Herrera said a European-style debt driven stimulus would have cost Mexico more in additional interest payments alone than the country’s spending on primary and secondary teachers’ salaries.

Instead of borrowing, Lopez Obrador says additional funds for social programmes can be found through cutting fat from the budget.

“It looks like goals of fiscal control are favoured over programmes of economic reactivation,” said Jose Luis de la Cruz, director of Mexico’s Industrial Development and Economic Growth Institute.

“For the Mexican government it is very important to send a signal that there is a very strong commitment to avoid further indebting the country,” he said.

Herrera’s budget forecast a contraction of only 8 per cent in the economy this year, a rosier view than the central bank’s worst-case scenario of a 13 per cent slump.

In a similar vein, Herrera predicted 4.6 per cent economic growth next year, significantly better than the bank’s gloomiest prediction.

Herrera said there would be growth in real terms for public health spending, which he said would emerge permanently stronger from the pandemic, and for road-building and other infrastructure, which he said would be a source of jobs.

He also reiterated President Obrador’s promise of no new taxes or tax increases this year.

The budget proposes lowering debt as a proportion of gross domestic product by the end of next year. Despite that goal, the government recently gave itself more room for debt to rise to 70 per cent of GDP if needed over the next four years.

The budget proposes US$5.2 billion in federal government foreign debt operations and another US$1 billion in foreign debt operations for Pemex.

Mexico’s primary budget balance — which excludes interest payments on existing debt — will be nil next year, the budget proposes. It includes a revision of the figure for this year, from a 0.6 per cent deficit to a 0.2 per cent surplus.

It also proposes increased spending for some social programmes including pensions, but forecasts only 6.4 per cent overall revenue growth over 2020, a year in which the economy is forecast to contract the most in almost 90 years. — Reuters

Related Articles