Economics: 1Q public finance tops official forecast
Public finance results for the first quarter were in keeping with budget and finance ministry targets, but also provide evidence of an extension toward the troubling trend of rising spending, mounting public deficits and a multi-year trend toward sacrificing physical public investment. While it is true that both primary and public balance results were considerably better than had been programmed, they were greatly diminished from levels of a year earlier, as the primary surplus was almost halved and the public deficit roughly tripled.
The yawning public sector gap was almost entirely the result of additional spending as revenues were greater than a year earlier, although such gains were principally fueled by a rise in petroleum income thanks to recovering crude prices and in spite of both diminished demand for Mexican crude and an adverse forex effect.
Excluding extraordinary central bank trading surpluses, non petroleum revenues widened 2.6% thanks to real-term increases in tax revenues, and especially in non tax revenues, which were inflated by the extent to which income otherwise destined for Mexico’s Oil Fund for Stabilization and Development was entirely channeled into federal coffers.
Both public sector programmable and non programmable spending increased significantly. While the latter remained in line with official projections, that was achieved on the basis of an extension of the multi-year trend of making deep and disproportionate cuts to direct public investment, with all the adverse consequences this entails for the country’s productive apparatus and economic expansion over the medium and long term.
Based on official calculations first quarter results point toward the prospect of a further consolidation of public finance. However, we need to remember that meeting such goals demands that the shortfall in fuel excise taxes must be made up for in other areas even as the slowing pace of economic growth and internal consumption point toward shortfalls in income, VAT and import tax revenues. We must also remember that while the seasonal nature of public spending generally favors compliance with year-end budget targets, presidential election years impose spending demands of their own.
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