Economics: Fiscal sustainability doubts to extend through the current administration
The 2022 budget package the López Obrador administration sent Congress last week suffers from many of the same weaknesses as its 2021 predecessor. Once again, it is overly optimistic in some of its macroeconomic assumptions, and for its revenue and expenditure projections it neglects to point out clear evidence that public finance has been weakening in its structure in recent years.
But more than a replay of 2021 budget, this year’s proposed budget package gives us an idea of the thinking not only of the new team presiding over the Ministry of Finance but also of the direction of economic policy in the second half of the administration of President López Obrador. In that respect it does little to raise hopes that public finance will be strengthened going forward, especially given the government’s hopes to expand revenues and its reduced ability to cover the cost of the ongoing expansion of public spending in a healthy manner, concerns that raise questions as to just how solid the latest official fiscal public debt targets might be.
The finance ministry estimates GDP will grow 4.1% in 2022, well above the modest 2-2.5% range of the pre-AMLO years, but even if the government’s forecast is fully borne out, the economy would be a mere 1.2% above levels prior to the end of 2018, when the current government took office. It also projects a 6.13 billion dollar current account deficit, a positive reflection of the economic recovery, with the rise in raw material, productive input and capital goods imports. However, a gradual return to a non petroleum trade deficit will reduce the excess revenues coming from the private sector current account surplus, which has been helping to cushion the FX impact of an estimated outflow of 16 billion dollars in financial investment during the first seven months of this year.
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