Itaú BBA - MEXICO – Public finance indicators reflect the final year of fiscal consolidation of the last admini

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MEXICO – Public finance indicators reflect the final year of fiscal consolidation of the last admini

January 31, 2019

Looking forward, 2019 Budget execution is a risk

Main public finance indicators reflect the final year of fiscal consolidation of the previous administration, but slightly below the Ministry of Finance (MoF) estimates. Nominal fiscal balance posted a deficit of 2.1% of GDP in 2018 (from a deficit of 1.1% of GDP in 2017 or 2.1% without the Central Bank dividend), slightly below the deficit estimate of the MoF for 2018 of 2.0% of GDP. In turn, the primary balance posted a surplus of 0.6% of GDP in 2018 (from a surplus of 1.4% of GDP in 2017 or 0.4% without the Central Bank dividend) slightly below the 0.7% of GDP surplus estimated by the MoF for 2018. However, the Public Sector Borrowing Requirements (PSBR), the broadest measure of Nominal Balance, posted a deficit of 2.3% of GDP (from a deficit of 1.1% of GDP in 2017 or 2.5% without the Central Bank dividend), better than the estimate of the MoF (a deficit of 2.5% of GDP).

Public debt was stable in 2018. Public debt decreased slightly to 46.8% of GDP year end 2018 (from 46.9% in 2017), while net public debt stood practically unchanged year end 2018 at 46.0% of GDP year end 2018 (from 2017). In turn, the Historical Balance of Public Sector Borrowing Requirements (the broadest measure of debt) stood at 44.8% of GDP year end 2018 (from 45.8% of GDP).

Looking forward, the 2019 budget shows AMLO’s administration commitment with responsible public finances, but execution is a risk. 2019 budget includes a primary surplus of 1% of GDP (above the 2018 primary surplus of 0.6% of GDP) and a nominal fiscal deficit of 2.0% of GDP (broadly the same as 2018 deficit). However, given the substantial expenditure for AMLO’s economic and social programs (which will be financed with overoptimistic fiscal savings) and downside risks to economic activity (US slowdown, uncertainties generated by domestic policies and the fall in oil production), reaching those targets will be challenging. However, we note that at the beginning of the first year of a new administration, there is usually underspending. So, not necessarily, low fiscal deficits in early 2019 should be read as a sign of fiscal prudence. 


Julio Ruiz



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