Pena Nieto Gets Mexico Central Bank Boost After Budget Cuts

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The Mexican government will receive 31.4 billion pesos ($2.1 billion) in special revenue from the central bank, allowing a spending boost as falling oil prices prompt budget cuts.

President Enrique Pena Nieto’s administration will propose channeling the funds to joint infrastructure investments with the private sector next year, the Finance Ministry said in a statement today. The revenue comes from the central bank’s 2014 operational surplus.

Mexico’s government, which gets a third of its revenue from oil, is cutting spending after a 46 percent decline in the price of crude since June. After paring this year’s outlays by 124.3 billion pesos, or 0.7 percent of gross domestic product, Mexico will reduce spending by an additional 0.7 percent of GDP next year, the Finance Ministry said March 31.

The infusion from the central bank “is a favorable surprise for public finances,” Luis Madrazo, the Finance Ministry’s chief economist, said by telephone. “Since it’s non-recurrent, what we need to do is invest it in productive infrastructure that has an impact on the rest of the economy.”

While Mexico’s government has hedges that give it the right to sell 2015 oil exports at $76.40 per barrel, it doesn’t yet have price protection for next year. The Finance Ministry predicts an average export price for Mexican crude of $55 per barrel for 2016.

The Banco de Mexico surplus was left over after it set aside capital reserves as required by law, the Finance Ministry said.

The peso strengthened 0.6 percent to 15.2572 per dollar at 4:00 p.m. in Mexico City. The Mexican mix of oil closed at $55.10 per barrel yesterday, rebounding from an almost six-year low of $37.36 in January.

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