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2019 budget focuses on the elderly, affects science

The first budget presented by Mexico’s new leftist government was met with a positive response from financial markets on Sunday

2019 budget focuses on the elderly, affects science
Mexican Peso - Photo: Edgar Garrido/REUTERS
English 17/12/2018 15:50 Reuters y redacción Mexico City Dave Graham, Horacio Jiménez, Leonor Flores, Alejandra Canchola, Mario Alberto Verdusco Actualizada 15:53
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The first budget presented by Mexico’s new leftist government was met with a positive response from financial markets on Sunday, with banks describing the plans to keep a lid on spending as credible and helpful to investor sentiment.

The Treasury Minister, Carlos Urzúa, revealed the economic criteria of Andrés Manuel López Obrador's 2019 budget, pledging to find more money for both the elderly and unemployed youngsters by slimming down several government ministries, and in expectation of higher tax revenues.

They foresee an expenditure of MXN $5.7 billion in 2019; this number will a real growth regarding this year's expenditure, 6.1%, around MXN $330.8 million, nevertheless, it shows an effective reduction of 0.2%. It contemplates an economic growth between 1.5 and 2.5%; the peso-dollar exchange was set to $20 pesos.

The interest rate was established at 8.3% and the oil barrel was set to USD $55.

The inflation was set at 3.4% and the primary surplus will be of 1% of the Gross Domestic Product (GDP).

The budget is a major test for President Andrés Manuel López Obrador’s economic credibility, which was shaken when he canceled the construction of the new Mexico City airport on the basis of a referendum that was widely panned as illegitimate; now his administration has requested MXN $18,000 million to rehabilitate and modernize the Benito Juárez and Toluca airports, as well as the construction of runways in Santa Lucía.

The new government also request MXN $6,000 million for the construction of the Mayan train.

López Obrador took office on December 1, and much of the new budget fulfills proposals made during the election campaign.

Still, analysts at Citi said the spending promises were below consensus forecasts, calling the budget a “positive surprise” for the market.

Mexican bank Banorte echoed the sentiment, predicting markets would respond well on Monday.

Due to be approved by Congress before the end of the year, the plan forecasts a slight slowdown in economic growth to about 2% next year from an estimated 2.3 percent in 2018.

Nevertheless, markets are likely to monitor the progress of the budget closely to see if Urzúa can meet his targets and how he reacts if his revenue projections prove unrealistic.

After canceling the airport, the government has been trying to craft a deal with the holders of bonds that were issued to finance the airport. Although the two sides have been moving closer, the dispute remains a factor of uncertainty, said Raúl Feliz, a researcher from CIDE.

On Sunday, Mexico declined to further sweeten an offer to buy back almost a third of the airport bonds.

Markets are also keeping tabs on the financial health of heavily-indebted state oil firm Pemex, which López Obrador has pledged to revive.

To find extra cash, the plan prescribes budget cuts to ministries including agriculture, transport, and environment.

If the budget is approved, the ministries that will benefit are Pemex, IMSS, CFE, the Well-being Ministry, the Ministry of Labor and Social Security, the Ministry of Energy, Public Education, National Defense, the Ministry of Tourism, and the Inegi.

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