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Fiscal balance strongly strengthens Mexican economy at six-year term closing in 2018

By: Dr. Alejandro Díaz-Bautista, Economist (PhD)

The SHCP seeks a fiscal balance at the end of the six-year term with the Economic Package 2018.

The federal government proposed an Economic Package for 2018 aligned with its promise to return to a fiscal balance, by containing spending, increased revenue, reducing public debt and achieving two consecutive years of primary surplus, to face a year of uncertainty by the renegotiation of the North American Free Trade Agreement (NAFTA).

The Secretary of Finance and Public Credit (SHCP) projects a macroeconomic framework with GDP growth in the range of 2.0 to 3.0 percent by 2018. By 2017, it revised upwards the growth estimate, from 2.0 to 2.6 percent, from a range of 1.5 to 2.5 percent. “Fiscal balance strongly strengthens Mexican economy at the sexennium closing in 2018,” said Dr. Alejandro Díaz-Bautista, an economist, national researcher at Conacyt, as well as a research professor at Colef.

Some stability in finances and other macroeconomic variables is estimated, as well as a drop in inflation, and a stronger peso and price of crude in 2018. Treasury worked in an Economic Package with the path of fiscal consolidation committed since 2013 and it has been ratified for four years as it plans to reduce total public debt by 50.2 percent as a percentage of GDP approved for 2017 to 47.3 percent by 2018.

Meanwhile, the Expenditure Budget Project 2018 amounts to 5 trillion 236.4 billion pesos, an increase of 113.4 billion pesos compared to the figure approved for 2017. This level of expenditure will be financed by 91 percent with budgetary revenues expected at 4 trillion 735 billion pesos for 2018, an increase of 165.3 billion pesos, compared to 2017.

The remaining nine percent will be financed with a deficit of 466.7 billion pesos, which decreases by 51.9 billion pesos, compared to the one approved for 2017. “This is the smallest deficit since 2013 and it means a reduction in Financial Requirements of the Public Sector from 2.9 to 2.5 percent of GDP from 2017 to 2018. This will contribute to reduce the historical balance of debt to 47.3 percent of GDP, where it would be estimated to close at the end of the administration, “said the head of Finance, Dr. Jose Antonio Meade, when delivering the Economic Package to Congress.

The reduction of the deficit and the total debt of the country also aim to achieve for the first time since 2008 a primary surplus in 2017 and to maintain it in 2018. The federal government submitted the Congress of the Union the General Criteria of Economic Policy 2018, as well as the Budget of Expenditures and the corresponding Revenue Law, last September 8 as ordered by the corresponding legislation.

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