No stimulus, tight fiscal targets in Mexico’s budget

Mexico’s government plans to keep a lid on spending while offering some support for health, vulnerable groups and infrastructure in a lean 2021 budget that forecasts only partial recovery for an economy hammered by the COVID-19 pandemic. FILE PHOTO: Mexico's Finance Minister Arturo Herrera attends the presentation of the national financial inclusion policy, in the Interactive Museum of Economics (MIDE) in Mexico City, Mexico March 11, 2020. REUTERS/Luisa GonzalezThe kind of government spending advanced economies had unleashed to recover from coronavirus lockdowns would have been devastating for Mexico’s finances, Finance Minister Arturo Herrera said on Tuesday. “We would like to think there is money for everyone, but that is not the reality we are facing,” Herrera said, comparing the economic crisis to the 1930s Great Recession as he delivered an austere budget proposal to Congress Herrera said there would be growth in real terms for the public health sector, which he said would emerge permanently stronger from the pandemic, and for road-building and other infrastructure, which he said would be a source of jobs. He also reiterated President Andres Manuel Lopez Obrador’s promise of no new taxes or tax increases this year. A copy of the budget on the finance ministry website proposes lowering debt as a proportion of gross domestic product by the end of next year. It also proposes increased spending for some social programs including pensions, but forecasts only 6.4% revenue growth over 2020, a year in which the economy is forecast to contract the most in almost 90 years. Mexico’s primary budget balance - which excludes interest payments on existing debt - will be nil next year and the economy will grow by about 4.6%, the budget forecasts. “Assuming that these numbers are correct, it seems that they still want to maintain a healthy fiscal balance sheet,” said Julio Ruiz, chief economist for Mexico at Brazilian bank Itau. Lopez Obrador is an outlier among both wealthy and emerging nations, insisting on keeping spending tight even in the face of the economic destruction wrought by coronavirus lockdown. “It looks like goals of fiscal control are favored over programs of economic reactivation,” said Jose Luis de la Cruz, director of Mexico’s Industrial Development and Economic Growth Institute. “For the Mexican government it is very important to send a signal that there is a very strong commitment to avoid further indebting the country,” he said. Mexico’s central bank recently warned the economy could contract by 13% this year. The bank forecasts between 1.3% and 5.6% growth next year. Lopez Obrador argues his discipline will eventually leave healthier finances, while ruling out more taxes or new social programs.

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