Saturday, September 30, 2023

How big is the budget deficit and why is it dangerous that it is the highest since 1988? – The financial

The Mexican government said the budget deficit will widen next year, the final year of President Andrés Manuel López Obrador’s administration, as it expands support for Pemex and social programs ahead of general elections.

Mexico will run a budget deficit of 4.9 percent of gross domestic product in 2024, compared with an estimated 3.3 percent for this year, the Finance Ministry said in a budget proposal submitted to Congress on Friday. On a primary basis – net of debt payments – Mexico will go from a surplus of 0.1 percent to a deficit of 1.2 percent next year, the draft says.

According to the proposal, the budget of Petróleos Mexicanos, as the state oil producer is officially known, represents a financial surplus of 145 billion pesos ($8.2 billion) that must be discussed and approved by Congress.

The decision to significantly expand the deficit runs counter to the López Obrador government’s prudent fiscal approach since it came to power in late 2018, including the fact that it has not provided significant stimulus during the pandemic.

AMLO, as the president is known, ends his term in office in about a year and his party’s candidate, Claudia Sheinbaum, is leading the polls to succeed him in the June 2 election.

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

According to the budget proposal, Mexico will grow between 2.5 and 3.5 percent this year and next. According to the document, the country’s key interest rate will remain at the current 11.25 percent until the end of 2023, before falling to 9.5 percent in December 2024.

“Social investments, the completion of projects that stimulate physical investments and restoring the purchasing power of salaries are priorities,” Finance Minister Rogelio Ramírez de la O said as he presented the proposal to lawmakers in Mexico City.

Expectations for the Mexican economy in 2024

The debt-to-GDP ratio is expected to rise to 48.8 percent next year from an estimated 46.5 percent in 2023, the Finance Ministry also said, adding that debt has increased by 5.2 percentage points since the start of López Obrador’s administration. This relationship is “sustainable” and better than at the end of previous governments, he added.

“The government is using the fiscal space it did not use during the pandemic to end government at full speed and provide an economic recovery,” said Marco Oviedo, strategist at XP Investimentos. “The challenge for Pemex is to achieve a balanced budget.”

World Nation News Desk
World Nation News Desk
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