AMLO's 1st Budget Projects Surplus, 'Fiscally Responsible'

Mexico’s new leftist government presented a first budget aimed at calming nervous markets while honoring pledges to increase welfare spending, saying it would run a bigger surplus next year once interest payments on debt were excluded.

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Finance Minister Carlos Urzua presented the budget Saturday evening, setting out plans to find more money for both the elderly and unemployed young people by slimming down several government ministries and through forecasts of higher tax revenues.

Lopez Obrador took office on Dec. 1, and much of the new spending covered pledges made during the election campaign.

The spending plan is more or less what was expected, said Raul Feliz, an economist at the Center for Economic Research and Learning (CIDE) think tank in Mexico City.

The plan, which is due to be approved by Congress before the end of the year, forecasts a slight slowdown in economic growth to about 2 percent next year from an estimated 2.3 percent in 2018.

The package also targets a 2019 primary budget surplus — a figure which strips out payments on existing debts — of 1 percent of gross domestic product (GDP). That would be better than the 0.7 percent primary surplus estimated for 2018.

That was an important signal, analysts said.

"The new government's economic package and budget proposal for 2019 is fiscally responsible on its face and in the details. To start, it's fiscally responsible to not increase the current deficit of 2.5% of GDP and to propose a primary surplus of 1% of GDP."

Still, markets are likely to monitor the progress of the budget well into next year to see if Urzua can meet his targets.

Another major factor in the budget is the financial health of heavily-indebted state oil firm Petroleos Mexicanos, or Pemex, which Lopez Obrador has pledged to revive. The budget envisions an increase of some 14 percent in funding for the company.

This move is meant to create more energy sovereignty for the country, and to help repair, refurbish, and update a nationally important industry. 

The budget plans substantial budget cuts to a number of ministries and the judiciary, with whom Lopez Obrador has been at odds since the Supreme Court this month froze a law mandating public sector pay reductions.

Urzua told a news conference that only the top layers of government bureaucracy would have their pay cut. Lower level civil servants would get raises, he said.