Reuters.- The Mexican government plans to increase the public deficit in 2024 at the highest level in more than three decades, could put pressure on public finances second largest economy in Latin America and, finally, threatened credit solvency, analysts agreed.
In the draft budget presented on Friday, the government predicted that the deficit should be expanded next year at 4.9% on Gross domestic product (GDP) from 3.3% this year, as the country prepares to elect a successor to President Andrés Manuel López Obrador.
Most of the extra spending will cover the higher costs of social programs y financing for projects emblematic infrastructure of the president, in particular, the Mayan Train.
López Obrador continues to control spending by reducing the State’s shares that he considers excessive and public sector wage restraint but he lifted the restrictions before the elections in June 2024. Claudia Sheinbaum, former mayor of Mexico City, was chosen last week as the candidate to replace him and continue his policies.
“This is one very electoral budget” said PAN member Patricia Terrazas, member of the Finance Commission of the Chamber of Deputies.
Historical data shows that the budget deficit expected that highest since 1988.
For the deputy director of Economic Analysis of CIBanco, James Salazar, the announcement on Friday already showed CONSEQUENCES on the rise of the main Mexican bonds.
The performance of bond 10 years from Mexico rose 17 basis points on Monday at 9.79%, while the 20-year note rose 18 basis points to reach 9.80%.
“This increase can be justified as an adjustment to a higher deficit because, at the end of the day, you have to change the tax or lower costs at a certain time and it can affect the activity of economy. It can be seen as a slightly increased country risk said Salazar.
However, the weight became stronger more than 1.6% against the dollar, snapping a seven-day losing streak.
With the central bank’s reference interest rate at 11.25%, the Mexican government should pay more to issue debt and the yield on its 10-year bond due May 2031 rose 100 basis points as of July 21, according to data from LSEG’s Eikon.
Mexico’s central bank, Banxico, has raised rates in a bid to increase price pressures and while inflation is below 5%, it remains. above the central bank’s target of 3%.
way government spending plans They need to improve the second largest economy in Latin America, which exceeded forecasts this year, improving the prospects for 2024.
However, it can also be encourage the process of controlling inflation and therefore keep high rates for a longer time, said Alberto Ramos, an economist at Goldman Sachs.
“From this broad base, the fiscal deviations (which lead to a budget deficit of about 6% of GDP) can be the cause sovereign rating downgrade especially when growth appears to be slowing,” he said.
Although some economists are more MANILA.
Raúl Feliz, an economist at the CIDE think tank in Mexico City, said that because Mexico, unlike many countries, continues to low cost during the Covid-19 pandemic, He now has some fiscal room to maneuver during an election year.
“That’s nothing to worry about” Frankly,” he said.
He also noted that since the current account deficit of Mexico currently much lower than foreign direct investment, there is a pool of untapped economic demand that the government can temporarily offset through additional spending.
But sooner or later I have to expenditure control and probably should legislate a Tax Reform the next government will do it in a sustainable way, argued Feliz.