MEXICO – 2022 fiscal budget: wider, but still-moderate, fiscal deficit targets

Mild fiscal reform included aimed at reducing informality in SME’s

Julio Ruiz


The Ministry of Finance (MoF) sent the 2022 Budget proposal to Congress, widening the fiscal targets relative to previous official estimates. The nominal and primary fiscal balances for 2022 were set at deficit of 3.1% of GDP (compared to the previous MoF estimate of a deficit of 2.3% of GDP) and a deficit 0.3% of GDP (from a surplus 0.4% of GDP), respectively. In turn, the Public Sector Borrowing Requirements (PSBR), the broadest measure of fiscal deficit is estimated at a deficit 3.5% of GDP.

The fiscal revenue estimate increased by 0.5% of GDP for 2022 (relative to previous estimates) explained by improved economic activity and a mild tax reform, but it was more than offset by higher expenditure projections. The reform introduced a tax payment simplification scheme for individuals with entrepreneurial activities and firms in an attempt to reduce informality in SME’s. No tax rate increases (nor new taxes) were included in the fiscal package besides an inflation update to the gasoline, sugary drinks and cigarette excise tax.

The fiscal target for 2021 was also updated and deteriorated slightly, also relative to previous estimates. The nominal and primary fiscal balances for 2021 were set at a deficit of 3.2% of GDP (compared to the previous MoF estimate of a deficit of 2.8% of GDP) and a deficit of 0.4% of GDP (from 0.0% of GDP), respectively. Relative to previous estimates, the worse fiscal balance is explained by higher expenditure (partly associated to COVID) which was partially mitigated by an increase of fiscal revenues.

Optimistic oil production and GDP growth assumptions for next year risk wider deficits than planned by authorities.  GDP growth forecast for 2021 stands at 6.3% (compared to market consensus of 6.2%), while for 2022 it is above market consensus (4.1% versus 3.0%). While the budgeted oil price for 2022 (55.1 USD per Barrel) seems to be aligned with current market conditions, the oil production target is still on the optimistic side (1,826 thousand barrels a day in 2022, from 1,753 tbd in 2021 and from the average YTD production of 1,677 tbd). We note there are still no details of the oil price hedge.

The budget reflects further support for PEMEX, while AMLO’s fiscal needs for his priority projects are worth 2.2% of GDP.  The Ministry of Finance reduced further the tax burden for PEMEX and the budget also included a capitalization from the sovereign to the oil company worth MXN 45 billion to strengthen its financial position and continue with the construction of a refinery.

Net public debt is estimated stable despite larger fiscal deficits (relative to previous estimates). Net debt for both 2021 and 2022 is estimated at 49.7% of GDP (compared to 52.1% in 2020).

We now expect a nominal fiscal deficit of 3.2% of GDP (from our previous scenario of a deficit of 2.8% of GDP) and 3.5% of GDP (from a deficit of 2.9% of GDP) for 2021 and 2022, respectively, explained mainly by increased expenditure reflected in the budget. Our 2022 nominal fiscal deficit is larger than the MoF target mainly due to a more conservative GDP growth forecast next year (3.4%) and less optimistic oil production assumptions. Larger than expected expenditure needs for AMLO priority programs is also a downside risk to the fiscal outlook. Finally, we note the fiscal package didn’t include any discussion about the use of the IMF SDR’s nor a possible debt refinancing of PEMEX, something AMLO mentioned during his morning press.  

Julio Ruiz