Mexico: Government loosens austerity slightly in 2022 budget
In early September, the government presented the 2022 budget—the first prepared by the new Finance Minister Rogelio Ramirez de la O—which aims for a small primary deficit and for the overall fiscal shortfall to remain broadly unchanged as a percentage of GDP. As such, while the fiscal stance is still cautious, it is slightly less restrictive than the 2021 budget, which could provide activity with a mild boost next year. However, the GDP growth assumption is judged by our panelists to be optimistic, which could result in some risks to the execution of the budget.
Spending for 2022 is set at MXN 7.0 trillion (roughly USD 350 billion), up from the MXN 6.7 trillion expected for 2021. Among key spending areas, health and social security spending will receive a significant boost, while investment spending will rise sharply in order to make progress on some of the president’s key infrastructure projects, such as the Tren Maya railway development in Mexico’s south. Revenues are estimated at MXN 6.2 trillion (2021: MXN 5.9 trillion). As a result, the primary deficit is forecast at 0.3% of GDP, similar to the 0.4% outturn now expected for 2021 but below the zero primary balance set out in the original 2021 budget. The overall fiscal shortfall is seen largely unchanged at 3.1% of GDP. This is a sign that the government is aiming to balance the desire to keep a lid on public debt with the need to support activity in the wake of the Covid-19 crisis and support low-income groups.
However, the government is expecting real GDP growth of 4.1% next year, markedly above our forecasts for 3.0% growth. As such, revenue growth could undershoot expectations, leading the government to either pare back spending to meet its fiscal targets, or run a larger deficit than anticipated.