Economics: Banxico shortfall adds to budget woes
For months now we have warned that the 2021 budget package the government of President Andrés Manuel López Obrador proposed and ultimately passed last fall was marred by unrealistic revenue projections predicated on a similarly optimistic estimate of how much the Mexican economy is likely to grow this year. But there are more reasons for concern. The official projections failed to consider the obvious need for greater injections of funds into Pemex, or if it can expect to take in as much in tax revenues from the national oil company this year. One factor that partially mitigated the resulting uncertainty over public finance was the considerable amount the government could expect to collect this spring from Banco de México's foreign exchange trading surplus.
When we analyzed the budget last September and November it was generally expected that the extent of peso depreciation – which took the currency as far as 24 pesos to the dollar in April and May – would assure the government a considerable infusion of funds from the central bank by year’s end. But the peso was trading around 20/USD by December. As a result, earlier estimates of a central bank surplus on the order of 500 billion pesos need to be scaled back to a 200-250 billion range, possibly leaving only as little as 30 to 50 billion in revenues that might flow directly into the government coffers.
Such a shortfall would not automatically imply a significant increase in the fiscal deficit, but it may have important implications in this year’s very complicated context, at a time when public finance remains fragile, and both private investment and household consumption are greatly depressed. At the very least, it represents a new obstacle to achieving a badly needed counter-cyclical economic policy and an effective mass vaccination strategy.
Now read on...
Register to sample a report