Mexican President Andres Manuel Lopez Obrador sent Congress a 2020 budget plan that assumes a growth scenario many economists see as too optimistic.
Mexico’s economy will expand 1.5% to 2.5% in 2020, according to the proposal submitted by Finance Minister Arturo Herrera ahead of Sunday night’s deadline. Analysts in a Bloomberg survey on average see an expansion of 1.5%, with none expecting growth to exceed 1.9%, which is also the International Monetary Fund’s forecast in July.
The plan calls for a primary surplus, which excludes debt interest payments, that’s equivalent to 0.7% of gross domestic product. That compares to 1% expected for 2019. Investors have been awaiting the plan to check for fiscal slippage as AMLO, as the leftist is known, balances spending on social services, security and Petroleos Mexicanos against the constraints of a stalled economy.
“Overall, a relatively fair budget, but the assumptions on growth and oil production are definitely on the optimistic side,” said Alberto Ramos, chief Latin America economist at Goldman Sachs Group Inc. “The key question for investors and markets will be whether the administration is ultimately strongly committed to deliver the 0.7% of GDP primary fiscal target or not.”
The plan foresees oil output of 1.951 million barrels per day, implying an increase of about 18% from recent levels. After years of declines, state oil company Petroleos Mexicanos, or Pemex, stabilized its production at 1.66 million barrels a day in the second quarter. The proposal includes 86 billion pesos ($4.4 billion) to help Pemex via tax breaks and other measures.
The budget is the first that AMLO will send to Congress with his full imprint. The government had just two weeks to prepare the 2019 budget after he took office in December, which also left Congress with little time to debate it.
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.
Herrera and other officials had promised in recent days that the 2020 plan would be fiscally responsible and reassuring to investors. The peso was little changed at 19.5383 per dollar on Sunday night immediately after the budget plan was revealed
The government on Sunday also lowered its growth projection for this year to 0.6% to 1.2% — down from an April forecast of 1.1% to 2.1%. That’s still above the outlook of the central bank, which sees an expansion of as little as 0.2%. Policy makers cut Mexico’s benchmark interest rate last month for the first time in five years, shaving a quarter point from a decade-high 8.25%.
Even with the government’s rosy scenarios, the 4% average growth that AMLO has promised over his six years in office looks hard to attain. The finance ministry in April in a preliminary budget document had projected growth of 1.4% to 2.4% for next year as well as a primary surplus of 1.3%.
“The fiscal goals on their own may not look so bad, but the adjustment could be interpreted as a sign that the commitment to fiscal goals that AMLO has kept until now could be eroding,” said Felipe Hernandez of Bloomberg Economics. “Investors could start asking more questions.”
With Information from: Bloomberg Capital Markets, Inc. Bloomberg financial. Lehman Brothers. Nyse stock exchange. Wallstreet, New York.
By mexicodigital news Editor.
Tulum, Qr. México. September the 9th. 17:00 hrs.