Mexico City — The government of Mexican President Andrés Manuel López Obrador expects lower budget revenues and a higher primary deficit by the end of 2023, after the treasury (SHCP) revised the fiscal targets set at the beginning of the year.
Mexico will move away from the primary surplus in the fifth year of AMLO’s six-year term, as the president is known.
The treasury revised the primary budget balance and raised the primary deficit to 0.6% of GDP by the end of 2023, from the original forecast of 0.1%, according to the SHCP’s public finance report to second quarter. The primary deficit of 0.6% of GDP is equivalent to 197.6 billion pesos ($11.8 billion).
As a result, the Treasury also adjusted the public sector borrowing requirements, the broadest measure of the deficit, which will reach 4.7% of GDP, higher than the 4.1% deficit originally forecast.
The deficit amounts to 1.43 trillion pesos ($85.7 billion).
In the current six-year term, in 2019 and 2020 the country recorded primary surpluses, but then, in 2021 and 2022, primary deficits were recorded.
The primary surplus is considered the guiding principle of the government’s economic package and is defined as the difference between total government revenues minus total government expenditures, but excluding the concept of interest payments.
In other words, before paying interest, what would be expected is a positive balance precisely in order to have a margin with which to pay interest without increasing indebtedness.
However, when there are adjustments toward a primary deficit, what is reflected is the situation of revenues, particularly oil revenues, despite the fact that there are hedges and what the Budgetary Revenue Stabilization Fund can compensate.
Héctor Villarreal, a member of the working group for fiscal transition, said that the adjustment in the primary deficit can be read as an insufficiency of revenues. “They [revenues] are not enough, if you go on the revenue side we bring a robust revenue tax, but VAT is lagging a lot.”
He said that there are a series of non-tax revenues that are falling significantly, particularly those related to oil and state oil company Pemex’s revenues.
Lower revenues
The Treasury revised downward its budget revenue estimate for year-end and now expects revenues to total 6.93 trillion pesos, below the 7.12 trillion pesos forecast.
The downward adjustment is explained by two factors: first, the estimated decrease in oil revenues, of 249.75 trillion pesos, in the context of the fall in international crude oil and natural gas prices due to expectations of lower global demand, as well as the appreciation of the Mexican peso.
And second, lower tax revenues due to a moderation in the results observed in the last months of 2022 due to an increase in refunds and the appreciation of the peso, a fact that influences the decline in the collection of VAT and import tax.
These revenues are expected to be partly offset by higher revenues from agencies and companies other than Pemex of 82.65 billion pesos, as well as an increase in non-tax revenues from the federal government of 86.25 billion pesos.
With the estimated revenues and the authorized public deficit, net spending for 2023 is expected to amount to 8.18 trillion pesos, 74.21 billion pesos below the amount approved in this year’s expenditure budget. Internally, programmable spending is estimated to be 5.92 trillion higher.
