The General Economic Policy Preliminary Guidelines for 2020 that the Ministry of Finance released at the beginning of April contain what we regard as generally realistic macroeconomic framework projections both for the remainder of 2019 and full-year 2020. The ministry lowered its estimate of average GDP growth for the current year to 1.6% and introduced a 1.9% forecast for 2020. Though both figures take into account the slowing observed in economic activity in recent months, they are both slightly more optimistic than market consensus and our own estimates.
The ministry’s preliminary public spending calculations anticipate the need to lower spending this year by the same 121 billion peso level of projected budgetary revenue shortfall in order to meet year-end targets of holding the public deficit to 2.0%, the primary balance at 1.0%, and public debt at 45.4% of GDP. However, it remains a mystery as to how officials expect to trim spending to such an extent.
The government may have spent 80 billion pesos less than what had been authorized in the 2019 budget for that period, but most of that amount corresponds to spending bottlenecks that will have to be addressed with proportionally higher expenditure levels in the coming months.
The preliminary criteria anticipates the need to curtail spending in 2020 by a real 3.0% relative to what the 2019 budget authorized for the current year, and estimates that this could be achieved based entirely on a 4.8% reduction in programmable spending alongside a 1.3% increase in non programmable spending.
It will be crucial to analyze whether it is politically viable to spend such low amounts and still fulfill the priority commitments the government has made, as well as the real risk of officials' taking a knife to the most effective social programs. The fact of an economic slowing will exert greater pressure for countercyclical spending aimed at helping to reactivate private consumption, and give relief to the most vulnerable population groups experiencing reduced incomes.
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