Mexico | The 2024 Economic Package will close six-year term without fiscal disequilibrium

Summary

The 2024 Economic Package was built with realistic macroeconomic assumptions. The fiscal equilibrium will be maintained in spite of such package setting a target of -1.2% of GDP for next year’s primary balance.

Key points

• Key points:
• Nevertheless, it is worrisome that the public deficit of 4.9% of GDP (estimated by the Ministry of Finance) for next year will reach an all-time high since 1990. This deficit is also surprising in a context in which the same government agency forecasts GDP growth above potential growth (2.6% vs. 2.4%).
• This implies a procyclical fiscal policy that is going to be detrimental to the path of public debt (% of GDP). In contrast, a countercyclical fiscal policy would promote more stability of such public debt to GDP ratio and could provide more room for maneuvering in the future in case of a recession or a significant fall of crude oil prices.
• The Ministry of Finance estimates that the Historical Balance of Public Sector Borrowing Requirements (HBPSBR) will be 48.8% of GDP by the end of 2024, a level that will not cause any problem regarding the payment of sovereign or Pemex debt amortizations.
• Our own calculations show that it would be necessary to have PSBR of -3.5% of GDP in 2024 to keep the historical balance of such requirements at 46.5% of GDP. This level could also be kept with PSBR at -5.4% of GDP (estimated by the Ministry of Finance) if next year’s economic growth were 7.8%, a scenario that we consider very unlikely.
• Given the foreseen fragility of public finances for the following years, it will be necessary for the next federal government to design and implement a fiscal reform that raises tax revenue.

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