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Mexico defends budget, says income and expenses are realistic

Mexico defends budget, says income and expenses are realistic

MEXICO CITY (Reuters) - Mexico’s finance minister defended the 2020 budget proposal on Monday, insisting that his tax revenue and spending projections are credible, despite concerns among some economists that forecasts for growth and oil output are overly optimistic.

FILE PHOTO: Mexico's Finance Minister Arturo Herrera gives a speech after he presented the 2020 national budget to Laura Angelica Rojas (not pitured) president of the Lower House of Congress at the Congress building in Mexico City, Mexico September 8, 2019. REUTERS/Luis Cortes

President Andres Manuel Lopez Obrador’s second budget since winning office last year aims to boost spending on welfare programs, security and state oil company Pemex, while also eschewing new taxes or fuel price hikes.

“We have presented a realistic budget, without underestimating income or expenditures,” Finance Minister Arturo Herrera told a news conference. “For a very long period, income was underestimated in a more or less systematic way, so that there was always surplus income at the end of the year.”

The administration cautiously freed up funds for spending, targeting a primary fiscal surplus of 0.7% of gross domestic product, below earlier targets.

Some private economists took the view that while the primary surplus target was credible, Herrera’s forecast of 1.5%-2.5% growth in gross domestic product next year could be hard to achieve after three consecutive quarters of stagnation.

Lopez Obrador took office in December vowing to reduce chronic inequality and deliver average annual growth of 4%.

Forecasts for higher oil production from the indebted Pemex were also on the upper end of the feasible, economists said.

The budget estimates Pemex’s year-end 2020 oil output at 1.95 million barrels per day (bpd), up from an estimate of 1.73 million bpd this year, even though the state-oil firm’s crude production has fallen for 14 consecutive years.

Falling oil production and prices, as well declining income from taxes as Mexico’s economy struggled to avoid recession, have meant lower tax revenue for the government.

Alberto Ramos, head of Latin American research at Goldman Sachs in New York, said Herrera’s plan for raising revenue without new taxes may also include some wishful thinking.

“The government may be overly optimistic about its capacity to raise tax revenue, close loopholes, tackle evasion and non-compliance, and its capacity to further compress operational expenditure,” he said in a client note.

Alfonso Ramirez Cuellar, who chairs the budget committee in the lower house of Congress that will evaluate the budget blueprint, expressed a mostly positive view on the proposal but also said more work needed to be done on generating taxes.

The budget must now pass the lower house of Congress and the Senate before a final approval deadline of November 15.

But as Lopez Obrador’s ruling coalition holds majorities in both chambers of Congress, “any changes are likely to be minor,” said Nicholas Watson and Mario Marconini of consultancy Teneo.

Ramirez Cuellar said his budget committee would not be a rubber stamp.

“The lower house will fully use its powers of revision,” he said.

Reporting by Stefanie Eschenbacher; additional reporting by Diego Ore and Sharay Angulo; writing by Julia Love & Anthony Esposito; Editing by Dave Graham and Alistair Bell

Topic: #budget
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