- Pena Nieto proposes 0.4% surplus after interest payments
- Meade stepped in as finance minister a day before budget plan
Mexico’s government plans a higher-than-planned primary budget surplus for 2017, after two ratings companies put the nation on negative watch because of its ballooning debt levels.
The nation will slash spending to reach a primary surplus of 0.4 percent of gross domestic product in 2017, which excludes interest payments on debt as well as investments by state-owned oil producer Petroleos Mexicanos and other national projects, incoming Finance Minister Jose Antonio Meade said Thursday. If approved by congress, it would be the first time the budget includes a primary surplus in eight years and comes one day after Meade took his post following the sudden departure of the previous minister, Luis Videgaray.
President Enrique Pena Nieto is stepping up efforts to reduce outlays amid a crude price rout after both Standard & Poor’s and Moody’s Investors Service shifted their outlooks to negative over the past six months and the central bank pressured the government to rein in the largest current account deficit since 1999. While debt levels as a percentage of GDP are lower than many economies including Brazil and the U.S., they’ve risen rapidly, by close to 10 percentage points between 2012 and last year, according to government data, and have become a greater headache to rating companies as the economy slows.
"The market will take this budget proposal positively," said Alexis Milo, Mexico economist at HSBC Holdings Plc. "It has conservative parameters, and the fiscal adjustment is more than expected."
Meade’s budget proposal considers a growth forecast for the next year of 2 percent to 3 percent, down from the 2.6 percent to 3.6 percent the ministry estimated in April. The ministry has already cut its 2016 growth forecast twice this year to 2 percent to 2.6 percent.
With lower growth, the ministry expects higher debt as a percentage of GDP compared to government projections from April, Milo said. The budget proposal estimates that the broadest measure of debt will reach 50.5 percent this year and 50.2 percent next year. Also in April, Mexico had projected a primary budget surplus equal to about 0.2 percent of GDP.
The Finance Ministry predicts for next year an average export price for Mexican crude of $42 per barrel on 1.9 million barrels a day of production and an average peso level of 18.20 per dollar, stronger than the 18.6727 close on Thursday, Meade said.
To reach a primary surplus, the ministry proposes cutting 239.7 billion pesos, or 1.2 percent of GDP, in programmable spending from the budget that was originally approved by congress for 2016. That includes a decrease of 169.4 billion pesos in spending already announced in 2016, and 70.3 billion in additional cuts for 2017, which represents 0.3 percent of GDP, according to the Finance Ministry.