Sunday, October 1, 2023

Is there anything to worry about? – The increase in the deficit in 2024 has turned the red light on some economists

The deficit in 2024 has increased in relation to 2023 because it is estimated that the 2023 debt will close at 46.5 percent of GDP, well below the approved one, which is 48.7 percent. This shutdown leaves room for the 2024 deficit to rise until it reaches 48.8 percent, roughly the same as approved, the Treasury explained.

Mexico City, September 12 (However).– The Secretariat of Finance and Public Credit (SHCP) plans a public deficit of 3.3 percent in 2023 and 4.9 percent in 2024 The latter was the highest since 1988, when a group of economists raised the alarm about a possible deterioration of the credit rating, in addition to pointing out the impact they would have on the finances of the next administration, a situation created. it was clarified by the same agency that last Friday presented the Economic package.

the Financial Secretary explained that there is no such risk because, in fact, the debt of the current administration of Andrés Manuel López Obrador is the one with the smallest real increase since the six-year term Vicente Fox Quesada (2000-2006).

Gabriel Yorio González, Undersecretary of Finance and Public Credit, explained in a column on The Conference that in 2024 this deficit is planned “to maintain the momentum of public works that contribute to the growth of the Mexican economy in a context of moderate global growth and guarantee funds to complete priority infrastructure projects.”

Is There Anything To Worry About? - The Increase In The Deficit In 2024 Has Turned The Red Light On Some Economists

Rodrigo Mariscal, Chief Economist of the Treasury, said that “there is no time bomb” and checked on his Twitter account that in 2025 when the infrastructure projects will be finished, together with the space that the nominal growth of the Gross Domestic Product (GDP ), “the deficit will return to the normal path, if there are no changes in the scenario or a clear policy of the next administration.”

Mariscal also indicated that the 2024 deficit has increased in relation to 2023 “because it is estimated that the 2023 debt will close at 46.5 percent of GDP, well below the approved amount (48.7 percent). This closure gives space for the 2024 deficit which will increase until it reaches 48.8 percent, almost the same as approved.”

In other words, the Treasury estimates that the public debt will remain stable and around 50 percent of GDP, as committed by the Government of López Obrador, at the same time that the change in GDP causes this level of decreasing significance.

On the contrary, the public debt of the United States in 2022 in relation to its GDP is 121.68 percent while that of Japan, the highest of all, amounts to 261.29 percent. Even in the Latin American and Caribbean region it is the fifth lowest, surpassing Chile, Paraguay, Peru and Guatemala.

Alejandra Macías, director of the Center for Economic and Budgetary Research (CIEP), explained that this deficit is because they reduced Pemex’s obligations to transfer oil revenue to public revenue at the beginning of this Administration. “In the DUC (Right of Shared Profit), which is the obligation of Pemex, it is at 75 percent and now it is at 35 percent, which on the one hand and, on the other hand, the lack of productivity of both the public that company , state, and, in addition, transferred its money to pay off its debt, it is one of the most indebted oil companies in the world and it is very difficult to get it out of that situation, we have not been able to. in recent years,” he said in an interview with Dulce Olvera in the Doce a Una program broadcast by SinEmbargo Al Aire.

—The Secretary of the Treasury himself talked about this increase in spending allocated to infrastructure, specifically the Mayan Train, the Dos Bocas refinery, in Tabasco, what can you tell me about that? —asked him about it.

—It is surprising that we will borrow almost two trillion pesos, and the investment decreased 11 percent, and the amount of all investment costs that go to priority work is like 20 percent of all spending, as there is mixed messages, I have increased debt by more than 40 percent but I have reduced investment spending and, moreover, the mega jobs represent 20 percent of that cost that I have already reduced, in fact if the mega works suit us to spend 200 billion pesos, why do we need two trillion, and as I told you at the beginning, it is likely that we will pay pensions with those resources.

Marcos Daniel Arias, Monex economist, pointed out The financial that due to the favorable effects created by the appreciation of the exchange rate and greater growth for 2023, the implications of the increase in the deficit in the historical balances of public finances do not seem to have a great impact for the time being -immediate future, although he warned that if the trend continues, a source of risk may open for the medium term.

Renzo Merino, senior analyst at Moody’s, said The Economist, shows that the Government’s intention to accept a high deficit, more than 5 percent of the Gross Domestic Product, for next year, puts pressure on the fiscal strength of the sovereign’s rating compared to countries with the same rating. “Although investment spending may be reduced once emblematic projects are completed, current costs such as pensions may be difficult to adjust downward, especially due to sociopolitical issues,” he said.

Merino said that the next administration will face greater challenges in the financial field, including the consideration of a broad tax reform to recover the lost fiscal space.

Despite the warnings, economists like Enrique Quintana, one of the main critics of the López Obrador Government on this matter, ruled that there will be a reduction in credit. “In my view, when the rating agencies do their analysis of the Economic Package, they express their displeasure at the increase in the deficit. But when you do your risk assessment, it is surprising that at a level of public debt of 48.8 percent, could create a risk of crisis or rating downgrade,” he wrote in his column on The financial.

“The rating agencies have the last word, but I doubt that this Economic Package will lead to a deterioration of the public debt. However, the need to resort to greater debt will put on the table the issue of the viability of our fiscal plan in the medium term because the pressures of inertial spending will not go away,” he said.

Nation World News Desk
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