Mexico Proposes Austere Budget With Primary Deficit Narrowing

Mexico’s government is proposing an austere budget for 2021, with total spending falling and a narrowing primary deficit, as it forecast the economy to rebound from what analysts see as the worst contraction in almost a century.

The Finance Ministry expects next year to return to a balanced primary result, which excludes interest payments, according to a draft of the proposal obtained by Bloomberg News. At the end of August, the government projected it would post a primary deficit of 0.6% of gross domestic product during 2020 after ditching its goal of a surplus with the arrival of the coronavirus pandemic.

The document is due to be presented by the ministry to lawmakers in Mexico City later on Tuesday. Finance Ministry officials didn’t provide a comment on the draft when contacted.

The plan sees the government’s total spending falling 0.3% in real terms while total deficit reaches 2.9% of GDP.

The proposal confirms President Andres Manuel Lopez Obrador’s preference for austerity despite the country’s deep virus-driven economic contraction. Earlier this year, Lopez Obrador rejected using major fiscal stimulus as other countries from the U.S. to Australia have done and instead deepened budget cuts.

Read More: Policy Shift Needed to Fortify Mexico’s Long-Term Outlook

Slower growth is hitting tax revenue while a depreciation of the peso has increased the country’s debt burden.

The government plan projects the economy will expand 4.6% next year, which could be adjusted if a vaccine to the coronavirus is successfully deployed. Private sector analysts expect the economy will shrink around 10% this year, the most since 1932, and then climb 3.4% in 2021.

In its proposal, the Finance Ministry also budgeted for Mexico’s crude oil to sell at $42.10 per barrel next year, a rosier projection than its preliminary estimate of $30 per barrel, while it sees output at state oil giant Petroleos Mexicanos’ at 1.857 million barrels per day. Pemex was already struggling to reverse 15 years of oil output declines and reduce debt of $107 billion, the highest of any major oil company, before the coronavirus pandemic plunged oil prices to record lows in April.

Mexico’s lower house has until Oct. 20 to approve the revenue law, which must then be passed by the Senate by Oct. 31. The spending law, which only needs lower house approval, must be passed by Nov. 15.

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