Economics: The mirage of 1Q public finance
Public finance data for the first quarter confirmed much of what we already knew about government priorities, but raised further points of concern about how well the public coffers will hold up as we move deeper into the recession. The numbers look extremely upbeat at first glance, with public balances all showing surpluses, including a federal government surplus almost the size of the entire public balance. But Pemex posted almost twice the deficit officials had budgeted.
Public spending recovered largely due to early payments from government transfer programs, and there was also a notable increase in direct physical investment. But the most surprising part of the report was the strength of non petroleum tax revenues even as the quarter included the first signs of a more accelerated contraction of both economic activity (-2.4% preliminary GDP, -3.4% industrial production), and investment (-11% yoy 2M20), alongside accelerating job losses. Even as petroleum income was down, between January and March total budgetary revenues increased a real 9.2% year on year with strong growth in all tax categories.
Undoubtedly some of that improvement came from the López Obrador administration’s higher efficiency in matters of tax collection, as evidenced by the double and even high triple-digit increases in the taxes paid by some major corporations. But other factors may have contributed to this rise in public income during the first quarter that may not necessarily survive the first months of the year, and many may ultimately undercut collections through the rest of the year. With most of them a one-off occurrence, their loss will be all the more painful given the depth of the economic contraction to come.
How all of this plays out in the medium term will have a determining effect on the 2021 budget. By then the government will likely have exhausted the supplemental funding sources it has been drawing on, ratings agencies may have taken a harder view of Mexico sovereign debt, and the prospects for both direct and financial investment may well have deteriorated further.
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