The nominal fiscal balance stood at a deficit of 2.1% of GDP as of September, compared to the MoF's target (also as of September) of a deficit of 2.3% of GDP and the annual deficit target of 3.3% of GDP. The better-than-expected nominal fiscal deficit as of September is driven by a combination of lower primary expenditure (0.6% GDP below target) and higher than estimated other revenues (0.5% of GDP), which outweighed weaker than expected oil and tax revenues (see first chart below). Oil revenues explained most of the drag of total revenues (relative to the target as of September), reflecting an appreciated currency and lower oil prices. Tax revenues were also below the target as of September explained by weak VAT revenues (appreciated currency affected imported values) which was mitigated by a favorable evolution in income tax revenues. On a 12-month rolling basis, the nominal fiscal deficit stood at 4.0% of GDP in September (compared to a deficit of 3.2% of GDP in 2022), while the primary balance stood at a deficit of 0.7% of GDP (from a deficit of 0.5% of GDP).
Our take: We expect the 12-month rolling nominal fiscal deficit of 4.0% of GDP to narrow during the rest of the year reaching our forecast of a deficit of 3.3% of GDP, in line with the MoF's target. Given the appreciated currency has curbed fiscal revenues (oil and VAT) we expect the MoF to continue reducing expenditure to meet their 2023 target. Next year we expect a large nominal fiscal deficit of 4.9%, also in line with the MoF's target. Greater than expected expenditure from AMLO’s priority projects & programs, remains a risk to fiscal accounts next year.
See detailed data below