Mexico Proposes Slight Easing of Austerity in 2022 Budget

(Bloomberg) -- Mexico's new finance minister proposed a slight loosening of President Andres Manuel Lopez Obrador's austere fiscal belt, with a slightly-less conservative budget for 2022.

While much of the world spent heavily to prop up struggling economies during the pandemic, Lopez Obrador refused to increase borrowing, saying a lower debt load would help the economy recover faster. But Finance Minister Rogelio Ramirez de la O, a longtime ally of the president, seems to have persuaded him to slightly ease the government's fiscal restraints.

The proposed financial plan sees the government running a 0.3% primary deficit in 2022, having proposed a 0.4% surplus in the preliminary budget submitted in March. It forecasts the general deficit at 3.1%, up from a proposed 2.4% in the preliminary budget. The government is also set to miss its goals for 2021, running a 0.4% primary deficit, having projected that they would eliminate the deficit in March.

“Running a primary deficit forn next two years makes sense” given factors like the continuing pandemic and need to replenish empty stabilization funds, said Gabriel Casillas, chief economist at Grupo Financiero Banorte. “Mexico has been the “good boy” fiscally speaking. This must have its perks.”

The economy plunged 8.2% in 2020, but has outpaced expectations in 2021. The finance ministry projects GDP will grow 6.3% this year, far more than the 4.6% it predicted this time last year. In 2022, the government expects 4.1% growth. 

The proposal sees total net public sector spending of 7.05 trillion pesos ($353.6 billion) and budgets for Mexico's crude oil to sell at $55.10 per barrel next year. Output at state oil giant Petroleos Mexicanos is seen at 1.826 million barrels per day.

Energy Secretary Rocio Nahle said last month that the finance ministry was in the process of conducting its annual oil hedge.

Read more: Mexico Finance Chief Pledges Pemex Aid, No New Oil Law

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