Economics: 2023 revenue and spending plans don’t add up, but may afford officials some room
In our follow up to last week’s initial review of the López Obrador administration’s 2023 budget package in which we focused on its domestic and international macroeconomic assumptions, this week we delve deeper into its revenue and spending bills. These confirm our concerns that the 2023 budget package suffers from many of the same weaknesses as its four predecessors. Optimism is a common theme in the economic/fiscal programs designed by fiscal authorities. But this year they are unusually sanguine regarding the US and Mexican economies, in terms of growth, inflation, interest rates and debt projections.
A case in point: The administration projects Mexico GDP will grow a real 1.2%-3% while the revenue and expenditure bills were predicated on the economy's living up to the high end of this range. The consensus among private analysts anticipates 1.4% growth while we continue to estimate a mere 1.0%.
By overestimating revenues and projecting spending well below what we can realistically expect, the administration can project an artificially low public debt and fiscal deficit. But some of the numbers are apparently designed to give officials considerable wiggle room once the budget package gets past Congress. We calculate that tax revenues are overestimated by around 0.3% of GDP and expenses are underestimated by 0.2%, so the fiscal deficit could be 4.6% of GDP and the public debt 51.8%. Nevertheless, we do not expect a loss of investment grade in 2023, although agencies are likely to reaffirm their negative outlook on sovereign risk.
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