Economics: Time to Get the Fiscal House in Order
For some years now, at least since 2013, we at GEA have established the need to periodically make an adjustment of public finance so as to “accommodate” the foreseeable pressures of public spending both on the level of social expenditures and what is needed to meet the country’s infrastructure needs.
In this context there is an imperative necessity for measures to at least contain, or better yet reduce public debt while taking into account all public sector liabilities, and to take an approach aimed at achieving a more efficient or effective approach to public spending in ways that would be conducive to greater economic growth in a period of heightened uncertainty.
GEA has warned for many years now that the public sector debt reductions announced in the General Economic Policy Criteria (GEPC), which the administration presents each September as the basis for the annual budget, are never met. Such non compliance with targets is facilitated by the failure of officials ever to lay out concrete and credible measures for lowering the public deficit.
In order to achieve the degree of certainty that markets require this year it will be necessary to spell out more concrete and credible measures for achieving those objectives, as well as concrete quarterly targets that can convince economic agents that the government is serious about making the tough decisions that are needed.
In this week’s Economic Outlook section we analyze the context in which the government’s General Economic Policy Criteria (GEPC), revenue and spending bills, and Pemex’s business plan for 2017 are being designed, as well as the most important questions we expect those documents to deal with, or which we believe the government would be wise to address.
On a similar note, late last week Banco de México issued its latest quarterly report on inflation, in which it notes that in response to the complexity of the current international environment it will be necessary for the government to adopt measures that can solidify the country’s macroeconomic fundamentals.
In this sense, the monetary authority believes there can be no delay in implementing the public finance measures the federal government has announced, as their adoption would ease pressure on Mexico’s external accounts.
In the same document, the central bank downwardly revised the intervals of its economic growth estimates for the current year and 2017. The institution now estimates that Mexico’s GDP will grow by between 1.7% and 2.5% in 2016. In its previous quarterly report on inflation, it projected a growth range of between 2.0% and 3.0%. The new estimate interval for 2017 is for growth between 2.0% and 3.0% as opposed to the estimate made three months earlier calling for growth between 2.3% and 3.3%. Banco de México noted that the downward revision of its growth projections reflects the extent to which the Mexican economy continues to face a difficult external environment that is becoming increasingly challenging.
The central bank announcement came the same week in which that institution released the results of its monthly survey of private sector economists showing that analysts had lowered their estimate of real term economic growth for both 2016 and 2017.
The national statistics institute’s Business Confidence Index (or ICE for its Spanish abbreviation) for August showed yet another erosion of sentiment in the construction and commercial sectors (-1.2 and -0.6 points, respectively, year on year) while the manufacturing industry snapped a three-month streak of negative results with a slight firming.
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