No stimulus, tight fiscal targets in Mexico draft budget

© Reuters.  © Reuters.

By Diego Oré and Stefanie Eschenbacher

MEXICO CITY (Reuters) – Mexico’s government is proposing to rein in debt and offer only targeted spending increases in a 2021 budget that favors fiscal conservatism over stimulus spending for an economy hammered by the coronavirus pandemic.

A finance ministry draft of the budget, which was made public by officials at the lower house of Congress on Tuesday, proposed lowering debt as a proportion of gross domestic product by the end of next year.

Finance ministry officials are due to present the final budget plan to the lower house later on Tuesday.

The document proposed increased spending for some social programs including pensions, but forecast only 6.4% revenue growth over 2020, a year in which the economy is forecast to contract the most in almost 90 years.

State oil company Petroleos Mexicanos, which is poised to receive 45 billion pesos ($2.07 billion) to help its financial position, also stood out in terms of new allocations.

The draft predicts that Mexico’s primary budget balance – the calculation which excludes interest payments on existing debt – will be nil next year and that its economy will grow by about 4.6%.

“Assuming that these numbers are correct, it seems that they still want to maintain a healthy fiscal balance sheet,” said Julio Ruiz, chief economist for Mexico, at Brazilian bank Itau, about the draft.

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

“It looks like goals of fiscal control are favored over programs 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.

The Mexican economy is in the deepest slump since the 1930s Great Depression. Mexico’s central bank recently warned it could contract by 13% this year. The bank forecasts between 1.3% and 5.6% growth next year.

Lopez Obrador argues his discipline will eventually leave healthier finances, while ruling out more taxes or new social programs.

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