14 | NOV | 2019
Mexico unveils its 2020 budget
Mexico will invest billions in its state-owned oil company, Pemex - Photo: Edgard Garrido/REUTERS

Mexico unveils its 2020 budget

09/09/2019
13:52
Reuters
Mexico City
David Alire Garcia, Anthony Esposito, Sharay Angulo, Ana Isabel Martinez, David Alire Garcia, Ana Isabel Martinez, Stephanie Eschenbacher
-A +A
Arturo Herrera said 60% of the budget is allocated to payments to local governments and pensions

Leer en español

Mexico’s government expects a 0.7% primary fiscal surplus in its 2020 budget, a blueprint released on Sunday shows, as President López Obrador aims to balance spending priorities with a slowing economy.

López Obrador’s budget aims to boost spending on social welfare programs, security, and state-run oil company Pemex, while at the same time eschewing new taxes or fuel price spikes.

Discipline trumps stimulus

Mexico’s government also cautiously freed up funds for spending in its 2020 budget proposal, slightly loosening a primary surplus target as it aimed to balance big welfare promises with the reality of a stagnant economy.

One of the most outstanding measures of López Obrador’s commitment to fiscal responsibility is the primary fiscal surplus of 0.7% of gross domestic product targeted in the budget for next year, below earlier targets.

A preliminary budget forecast sent to lawmakers in April forecast a primary surplus of 1.3% of GDP for 2020.

“We applaud the fiscal discipline and responsibility in spending,” said Alfonso Ramirez Cuellar, chair of the budget committee in the lower chamber of Congress, which will evaluate the blueprint.

Alberto Ramos, head of Latin American research at Goldman Sachs in New York, had warned that the primary fiscal surplus needed to be above 0.5% of GDP, since going below that “would signal a weakening commitment to fiscal discipline.”

Speaking from the lower chamber, Finance Minister Arturo Herrera said around 60% of the budget is allocated to fixed spending, including payments to local governments, and pensions.

“The remaining 40% will go to three main destinations: welfare, security and the third spot is fiscal support for Pemex,” said Herrera, who noted the budget sets aside some USD $4.4 billion in extra funds for the ailing oil firm.

Part of the funds for security will go toward the new National Guard, a security force created by López Obrador to combat spiraling violence and record homicide rates.

Security Minister Alfonso Durazo has previously said he expects the budget to set aside MXN $56 billion pesos for the National Guard, but that figure was not highlighted in the budget documents.

The budget blueprint calls for MXN $59.2 billion pesos for “security and citizen safety” spending next year, around 6.5% higher than the 2019 budget.

The budget also calls for MXN $523.4 billion pesos for state-owned oil company Pemex, up about 9% compared to this year’s level, while Herrera stressed the MXN $86 billion pesos in extra support for the firm, including a capital injection of MXN $46 billion pesos.

The budget blueprint estimates Pemex’s year-end 2020 oil output at 1.95 million barrels per day but it was unclear if this includes just crude or total liquids production.

Pemex crude production has fallen for 14 consecutive years, which has also meant less tax revenue for the government.

Falling oil production and prices, as well as declining resources from income and value-added taxes as Mexico’s economy barely escaped entering a recession, have meant lower tax revenue.

The budget blueprint forecasts 2020 economic growth of between 1.5% and 2.5% and total government income of MXN $6.1 trillion pesos.

While Ramirez Cuellar expressed a mostly positive view on the budget proposal, he said the committee he leads would not be a rubber stamp.

“I think there needs to be a greater effort in income generation,” he said.

Pemex, a priority

Mexico will maintain a strategy of hedging its oil output against lower prices, the government said in its 2020 budget proposal unveiled on Sunday, adding that Pemex would also continue a similar but separate hedging program.

The Mexican Finance Ministry’s roughly USD $1 billion annual oil hedge is considered the world’s largest oil trader. Last week, Reuters reported that Mexico had made the first moves to launch the program by asking banks for quotes.

The budget document said the government had “fiscal shock absorbers” to protect against volatility that could affect public finances, including “a strategy of oil hedges contracted both by Pemex and the federal government to cover oil income against reductions compared to the price” estimated in the budget.

The Pemex hedge is much smaller than the one carried out by the Finance Ministry.

While it is not yet known what price the government and Wall Street banks have agreed on for Mexico’s 2020 hedge, the budget sets a target price of USD $49 per barrel for its crude export revenue estimates.

The budget blueprint estimates next year’s crude exports at 1.13 million bpd, or nearly 2% higher than 2019 levels.

The Finance Ministry based its 2019 hedge calculations on USD $55 per barrel for Mexican crude.

In a sign of the type of volatility that worries the government, Finance Minister Arturo Herrera said he had been planning to use the same number until last month, but lowered the estimate to reflect the U.S.-China trade war, slower global growth and new rules that limit the use of high sulfur fuel produced by Mexico.
 

Artículo

Mexican Ministry of Finance to implement stimulus package

Amid discussions of a possible recession in the country, the Mexican Ministry of Finance will deploy MXN $485 billion to impulse the economy
Mexican Ministry of Finance to implement stimulus packageMexican Ministry of Finance to implement stimulus package

gm
 

Mantente al día con el boletín de El Universal