The administration of Mexican President Claudia Sheinbaum aims to lower the fiscal deficit next year through a combination of spending cuts and an increase in tax revenue, according to the budget proposal submitted Friday to the congress.
Lowering the deficit is seen by economists as one of the first and most pressing tasks for the new president, who took office Oct. 1. Sheinbaum's predecessor and political mentor Andrés Manuel López Obrador increased the deficit in his final year in office, partly to complete a number of key infrastructure projects before leaving office.
The 2025 budget plan calls for the public sector borrowing requirement--a broad measure of the fiscal deficit--to decline to 3.9% of gross domestic product from 5.9% of GDP this year. Public sector debt is expected to hold steady at 51.4% of GDP in 2025.
Total proposed budget outlays of 9.226 trillion pesos ($453 billion) are down 1.9% from 2024, with higher debt financing costs expected to partially offset a reduction in other spending, including investment. Tax revenue is seen rising 3% from this year, supported by economic growth and measures to reduce tax evasion.
"Overall, a tough, but not impossible budget to execute," Goldman Sachs's chief Latin America economist Alberto Ramos said in a note. The adjustment relies heavily on spending cuts and "revenue may also disappoint given that real GDP growth is likely overestimated by at least 1.5%, but the administration may eventually benefit from a more depreciated peso and higher oil prices," he added.
The budget plan estimates economic growth next year between 2% and 3%, "backed by a solid labor market, robust private consumption, and high levels of public and private investment," the Finance Ministry said.
Other macroeconomic assumptions include inflation easing to 3.5% in 2025 from 4.3% this year, and an average exchange rate of 18.70 pesos per U.S. dollar, compared with 18.20 to the dollar this year.
The peso has depreciated sharply against the dollar since Mexico's June 2 elections as the ruling Morena party won enough congressional seats to make constitutional changes, including a recent overhaul of the judiciary that is seen weakening the system of checks and balances and possibly discouraging investors. The peso was trading at 20.39 to the dollar Friday.
Production of crude oil and condensates are expected to be steady at around 1.89 million barrels a day, with crude exports projected to average 892,000 barrels a day compared with 900,000 barrels a day in 2024. The average price per barrel for Mexican export crude is estimated for next year to be $57.80, down from $70.70 this year.
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