Mexico | Unwarranted optimism over the estimations of public finances

Summary

Given that rainy funds have already been exhausted by the current government and the pressure from some items of public spending will continue, the next government will not have enough fiscal space to avoid creating and/or raising taxes.

Key points

• Key points:
• The Preliminary Guidelines for 2024 document delivered to Congress last week has several relatively favorable (but questionable) elements for the estimations of public finances for 2023 and 2024. The outstanding elements of the aforementioned estimations are the following: i) interval forecasts for real GDP growth whose midpoints are 2.6% and 2.3%, respectively; ii) a daily average of liquid hydrocarbons production of 1,877 and 1,914 thousand barrels; and iii) a public deficit of 3.7% and 2.7% of GDP.
• Even though the Ministry of Finance foresees that public income will be MXN 131,537 million under the previously anticipated figure stated in the Income Law of the Federation since oil-related and tax revenue will be lower, the new estimations are based on real GDP growth of 2.6% vs. the analysts’ consensus forecast of 1.4% from the Citibanamex survey corresponding to March 21.
• The higher economic growth forecast is very likely causing an upward bias estimation for tax revenue of around 0.15 percentage points of GDP.
• If economic growth were close to 1.4% in 2023 and discretionary spending were not adjusted accordingly, this year’s public deficit could be up to 3.9% of GDP.

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