“Mexico requires a tax reform that is capable of increasing revenue collection, because otherwise not only will resources be lacking to pay for the federal government’s public (populist) policies, but stabilization funds would also be terminated,” specialists warned.
The federal government ended 2019 with a primary surplus (income less expenses) of 275,784 million pesos (MDP), higher than the 141,370 million pesos of the previous year.
How was this achieved? The administration of Andrés Manuel López Obrador (AMLO) had to use the Budget Income Stabilization Fund (FEIP), leaving it at 239,765 million pesos from the 388,771 million pesos that were available in December 2018, according to data from the Ministry of Finance.
“There are many ups and downs within public finances. The FEIP is falling and, in fact, the stabilization funds are falling more than 70% of their level, partly offsetting the fall in revenues, ”said Jesús Garza, professor at EGADE Business School at the Tecnológico de Monterrey.
“This is a clear reflection of the weakness of economic activity, and I think this negative trend and additional pressures will continue during 2020,” the expert said.
The government used part of the FEIP for the prepayment of Pemex’s debt – via capital injections and management actions of financial liabilities – when its main function should be to detonate infrastructure projects instead -.
Recently, Mexico’s Undersecretary of Finance, Gabriel Yorio, said that if the growth goals (2%) are not met for this year, the federal government plans to use FIEP resources.
“(That forecast) is too optimistic, it is not realistic. I believe that in the next quarter they should readjust it. I personally predicted 0.9% (growth) and now I thinking more of 0.5%, ”said the EGADE academic.
Jesús Garza’s forecast is in line with that of Bank of America (BofA) of 0.5%. The bank has even warned that weak economic growth and low revenue will cause the country to suffer a cut in its debt rating this year, however they clarify that Mexico will still maintain its investment grade.
“We expect growth to be 0.5% in 2020, as we still do not expect a recovery in investment and we are concerned that exports may not be strong enough to bring growth to 1% or more,” BofA said in a report.