Economics: No Growth Boost from 2018 Budget
A week ago the administration of President Enrique Peña Nieto sent Congress its budget package for 2018, which was closely aligned with what the Ministry of Finance had been signaling in recent weeks: conservative assumptions on the macroeconomic framework; a modest increase in revenues, more because of momentum than any additional tax collection effort; reductions in spending from the amount budgeted, although not the amount actually spent in 2017; correction of budget balances; and a slight reduction in the total budget balance. In other words, it represents a moderate advance toward what the ministry has called the “fiscal consolidation process,” with no change in taxes nor in the structure of the inefficient federal budget.
In general terms, the projected macroeconomic variables that make up the 2017-2018 GEPC are in line with, or within the estimated range of the average of economic analysts who responded to Banco de México’s survey. They are also consistent with our own projections at GEA for the two-year period.
The steady increase in so-called “social spending” by the federal government, which also occupies a large portion of the total budget and is responsible for much of the rise in total spending in recent years, has obligated the government to sacrifice “productive spending,” particularly in infrastructure, while proving inefficient for improving the welfare of the general population, as was just reported in the National Survey of Household Income and Expenditure and Coneval’s estimates on poverty. The counterpart is a substantial erosion of public investment, which in 2018 would sink to its lowest level in recent history.
Finally, there are the risks associated with modifications of the budget by the lower house of Congress, such as raising the price of oil or the exchange rate without justification in order to “accommodate” new budget programs or augment existing ones, particularly in this coming election year. As the Ministry of Finance traditionally does, expenses associated with “sensitive” items (agriculture, communications, etc.) are reduced to give congress leeway to increase them. We can expect that this year will prove no exception.
In sum, this is a realist, austere and unsurprising economic and tax package that will contribute to stability but do little for economic development.
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