Macro Analysis / Mexico

Mexico Budget Proposal 2021 – Austere and optimistic

  • The MoF presented its budget proposal for 2021, which includes a slight decline in income, and modestly higher spending
  • However, some of the macroeconomic estimates seem optimistic, such as those for GDP and oil production
  • We believe the government remains committed to healthy public finances, albeit with risks of a further deterioration
Mexico Budget Proposal 2021 – Austere and optimistic
  • The Minister of Finance, Arturo Herrera, delivered yesterday the budget proposal for fiscal year 2021 to the Lower House 

  • The proposal includes three documents: (1) The General Economic Policy Criteria;(2) the Revenue Law; and (3) the Spending Budget 

  • In the first one, the government adjusted their GDP forecast for 2020 lower, with the mid-point at -8.0% y/y (previous: -7.4%). For 2021, they expect a 4.6% expansion (Banorte: 1.8%; consensus: 3.0%) 

  • There were also adjustments in the rest of the forecasts, highlighting a modification lower in oil production and a weaker MXN in 2021, apart from higher inflation this year 

  • For 2020, they now see a primary balance surplus of 0.2% of GDP (previous: -0.6%), with the PSBR at -4.7% of GDP (previous: -5.4%). In 2021, they expect these at 0.0% and -3.4%, respectively 

  • On revenues, there were additional downward adjustments for 2020, driven mainly by lower economic activity and oil output. For 2021, they expect a 0.5% decline in real terms, with higher oil-related revenues but a hefty decline in the non-tax component 

  • Spending would barely increase 0.1% in real terms next year, focused on social programs and ministries such as Tourism and Defense. On the contrary, they propose important cuts in the Ministries of Labor and Finance, among others 

  • Resources to federal entities are estimated to decline 5.5% relative to the approved amount for 2020 

  • They expect to use $236.4 billion (US10.8 billion) in resources from the Stabilization Fund (FEIP), while the balance estimated to end the year close to $31.1 billion (US$1.4 billion) 

  • With this, the Historical Balance of the PSBR would reach 54.7% of GDP by year-end (previous: 55.4%). In 2021, it is estimated at 53.7%, to continue trending down afterwards 

  • We believe the government remains committed to healthy public finances within the limits of the current fiscal framework, with risks of additional weakness. Nevertheless, we estimate our country will maintain its investment grade status the rest of this year and in 2021

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