Meeting the fiscal deficit target of 3.1% of GDP maintained by the Mexican government for the end of the year, in a context of lower public revenues, implies that spending cuts are coming, Fitch Ratings warned.
When the government cuts its economic growth forecast, which was the basis for the federal budget, it is assumed that they will not have the anticipated revenue. And to honor the commitment to fiscal stability, the alternative is to adjust public spending, he stressed.
In a special comment, without impact on the sovereign rating, Fitch’s Latin American ratings director, Carlos Morales, specified that Mexico cannot count on higher oil-related revenues, despite the fact that a benefit will be seen from prices. highest international
This is because the fiscal stimuli that the Mexican government is applying to fulfill its commitment to keep gasoline prices stable will consume the higher income that will come from the sale of oil.
He also specified that the government’s growth projections, included in the General Economic Policy Precriteria for 2023, sound “optimistic”, which can lead to an overestimation of income.
Just last Friday, the federal government cut the GDP forecast, to a range between 1.4 and 3.4 percent.
This new official projection is far from the 4.1% estimated in December and is also far from the 2% that the rating agency has as its revised expectation.
In the document presented last Friday by the Treasury, they left the public deficit unchanged at 3.1% of GDP “in line with the estimates presented in the 2022 Economic Package.” And they stressed that the primary balance will be located at 0% of the GDP “which compares favorably with the deficit foreseen in the program of 0.3% of the Product”.
Outlook 2023
Regarding the expected assumptions for 2023, the analyst considered that a prudent fiscal policy is maintained that points to a zero primary result consistent with a stable debt load as a percentage of GDP.
As the agency put it, economic activity has stagnated since the end of last year due to weak investment and the effect of last year’s labor reform.
For the coming year, the Treasury projects a range of GDP growth between 2.5 and 3.5 percent. This forecast is slightly lower than originally forecast at 2.9 to 3.9 percent.
This revised performance is lower than the 2% that Fitch projects for the performance of the Mexican economy in 2023.
Mexico’s Fitch rating is the lowest among all agencies and just one notch above investment grade.
Mexico’s sovereign note is “BBB-” with a stable outlook, where it has been since April 2020.