The Ministry of Finance (MoF) presented the 2024 Budget to Congress, including higher fiscal deficit targets for next year. The nominal and primary fiscal balance for 2024 were set at deficit of 4.9% of GDP (compared to the 2023 deficit target of 3.3% of GDP) and a deficit of 1.2% of GDP (from a surplus of 0.1% of GDP in 2023), respectively. In turn, the Public Sector Borrowing Requirements (PSBR), the broadest measure of the fiscal balance is estimated at a deficit of 5.4% of GDP for next year.
The deterioration in the nominal fiscal deficit target for next year (relative to 2023) is mainly driven by higher spending, and to a lesser extent by lower revenues. Total expenditure is estimated at 26.2% of GDP for 2024 (up from 25% of GDP in 2023), concentrated in subsidies (transfers to households) and debt service. The budget also includes another capitalization to PEMEX of MXN 145 billion and a further reduction in the company’s profit-sharing duty to 35% (previously at 40%). Lower fiscal revenues also contributed to wider fiscal deficits next year. Total fiscal revenues for 2024 are estimated at 21.3% of GDP (down from 21.7% of GDP in 2023) explained mainly by lower oil revenues due to reduced oil prices and a further appreciation of the currency next year (relative to this year). Macro assumptions overall seem reasonable, except from an above consensus GDP growth next year (3.0% versus 1.7%).
Public debt is stable in the medium term yet will ultimately be decided by the next administration. The broadest measure of debt, the historical balance of public sector borrowing requirements, is expected to rise to 48.8% of GDP in 2024 (from an expected 46.5% in 2023) and then stabilize thereafter. Primary fiscal surpluses are expected after 2024. Importantly, the next administration’s decisions on fiscal policy will ultimately determine the medium-term fiscal outlook.
Our take: We lowered our 2023 nominal fiscal deficit to 3.3% of GDP (compared to our previous estimate of a deficit of 3.9% of GDP), and raised our 2024 nominal deficit forecast to 4.9% of GDP (before we expected a deficit of 2.9% of GDP), in line with the MoF’s forecasts. While we estimate lower growth than the MoF for 2024 (1.3% versus 3.0%), our oil price estimate is greater. Greater than expected expenditure from AMLO’s priority projects & programs, pose risks to fiscal accounts next year.
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