Economics: Latest data confirms deterioration of public finances

MEXICO - Report 08 Jul 2024 by Mauricio González and Francisco González

Public finances continue to deteriorate just as had been expected ever since Congress passed the 2024 federal budget last November. The public deficit in its broadest definition (PSBR) expanded a real 153% yoy in January-May 2024 alongside a Federal Government deficit that was 2.5 times greater than that of the previous year.

This adverse behavior of public balances was recorded despite a relatively favorable evolution of budgetary income, including growth in collections of VAT, excise taxes (mainly on gasoline and diesel) and import tariffs, while both income tax and non-tax revenues decreased. Net paid expenditure widened a real 17.3%, largely in response to strong growth in its programmable component (+21.3%) alongside a 7.5% increase in the non-programmable column. Of special concern was public investment as the physical investment side (AMLO's emblematic infrastructure works) increased by 33% and financial investment (channeled into the Dos Bocas refinery) soared 175%.

When releasing the latest results, the Ministry of Finance said public finances performed favorably in January-May 2024 and remained solid as deficits proved to be lower than the "programmed" ones. In this sense, it is important to consider that although the projected deficit constitutes a guide for the budget exercise, its compliance and/or deviations in no way indicate the soundness of public finances, especially when what is projected is precisely a considerable deterioration of the deficit and conditions are faced that make it practically impossible to reduce it in the coming year.

In this week’s Outlook we analyze the most recent public finance figures and their implications.

And among indicators released last week, private spending in April was sustained by demand for imported goods and a 2% rise in domestic services even as consumption of domestic merchandise fell further, setting the stage for a further slowing of personal consumption as the formal wage bill decelerates. GFI also extended its deceleration trend through April despite a robust performance in the case of construction in the non- housing segment. The latest batch of cyclical indicators points to a further loss of momentum, as well.

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