Economics: New signs of strain on public sector finance

MEXICO - Report 23 May 2023 by Mauricio González and Francisco González

The Ministry of Finance’s first quarter report on public sector finances delivered plenty of evidence confirming our fears over the past year of deterioration, with increasingly limited margins' continuing to gradually become more apparent. January-March saw a significant drop in revenues that officials attributed to a calendar effect requiring adjustments to various programmable spending components. This, together with a substantial increase in non-programmable expenditures, especially financial costs and pensions, implied increases in fiscal deficits.

Beyond the structural problems looming over revenues (lower oil revenues and an uncertain evolution of tax revenues in the context of an economic slowdown) and expenditures (greater pressures from financial costs and pensions), the trajectory of public debt and its associated costs are of increasing concern, with local currency debt increasing 8.7% in real terms at the same time as total financial costs are rising a real 46.3%.

In this week’s report we analyze the latest data and the public finance outlook over the medium term. And in the latest economic news, we report on Banxico’s rate pause and weaker retail and wholesale activity.

Now read on...

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