Fiscal balances deteriorated slightly on a 12-month rolling basis in June amid a strong MXN and lower oil prices. The nominal fiscal deficit stood at 3.9% of GDP in 2Q23 (from a deficit of 3.4% of GDP in 1Q23 and a deficit of 3.3% of GDP in 2022), while the primary balance stood at a deficit of 0.6% of GDP (from a deficit of 0.2% of GDP in 1Q23 and a deficit of 0.5% of GDP in 2022). The Public Sector Borrowing Requirements (PSBR), the broadest measure of fiscal balance, posted a deficit of 4.8% of GDP in 1Q23 (from a deficit of 4.6% of GDP in 1Q23 and a deficit of 4.5% of GDP in 2022).
The deterioration in fiscal balances as of June is explained mainly by lower-than-expected fiscal revenues which fell by 1.6% yoy 1H23 in real terms (MXN 190 billion below the MoF estimate). Oil revenues fell by 23.9% yoy YTD in real terms (also MXN 220 billion below the MoF estimate) dragged by lower oil prices and a stronger MXN. Tax revenues increased 4.1% yoy YTD in real terms supported by income tax revenues (solid labor market and favorable firm’s profits), a recovery of gasoline excise tax revenues (lower subsidy to retail gasoline prices was necessary as energy prices fell) but curbed by a fall of 8.0% in consumption tax revenues (VAT) reflecting lower imports value due to an appreciated currency and high VAT refunds. In turn, total fiscal expenditure increased 3.7% yoy YTD in real term in June pressured mainly by a 34% increase in financial costs, reflecting the high-rate environment. The historical balance of public sector borrowing requirements, the broadest measure of public debt, stood at 45.8% of GDP in June (from 49.4% of GDP in 2022).
The MoF now expects an average currency level of 17.6 pesos to the USD dollar (previously at 18.9) for this year, resulting in wider fiscal deficit estimates. The nominal and primary fiscal balances are now expected at a deficit of 4.0% of GDP (previously at a deficit of 3.8% of GDP) and a deficit of 0.6% of GDP (previously at a deficit of 0.1% of GDP), respectively.
Our 2023 nominal fiscal deficit forecast stands at 3.9% of GDP, similar to the MoF’s 4.0% of GDP deficit estimate. Our 2023 GDP growth forecast of 2.7% is still lower than the fiscal authority estimate of 3.0% (although we note our forecast has an upward bias after today’s 2Q23 GDP flash estimate figure), implying fewer fiscal revenues in our projection versus the MoF’s. However, our average currency forecast of 17.9 pesos to the USD dollar (18 pesos to the US dollar eop) is higher than the new MoF average of 17.6 which mitigates the shortfall in revenues from weaker activity relative to the MoF scenario. Larger than expected expenditure needs for AMLO’s priority projects and further support to PEMEX also pose downside risks to fiscal accounts.