Economics: Officials boast of strengths in 2022 public finance results despite points of concern

MEXICO - Report 06 Feb 2023 by Mauricio González and Francisco González

This week we analyze the main aspects of 2022 federal public sector finances and their implications. There were no real surprises in the public finance report for the fourth quarter of 2022 the Ministry of Finance released last week as it showed no deviation from the main trends in public sector revenue and expenditure. Having said that, however, the report confirmed the trend toward increasingly negative public balances compared to those of previous years, although they remain in ranges that can still be financed in a relatively healthy manner. Petroleum sources of public income continue to rise on strong oil and gas prices while tax revenues grew in some categories, especially income tax, although that positive trajectory deteriorated in the last months of the year even as excise tax collections remained depressed due to the government’s decision to use that tax as a mechanism to subsidize gasoline prices. A sustained increase in both programmable and non-programmable spending was observed, in the case of the latter mainly due to growing debt-servicing costs.

Despite the recent behavior of public debt, it and fiscal balances have been managed prudently and, at least for now, there are no risks that one might associate with a public finance crisis. However, balances corresponding to the Federal Government have been declining at a faster pace, a development largely associated with the administration's failure to adopt an effective approach to spending that can generate resources in the future while continuing to prioritize the means for supporting productive state companies. While such efforts could eventually avert a further deterioration of the investment grades of Pemex and CFE, it comes at the cost of doubts as to the corresponding sovereign debt.

In other economic news last week, preliminary data showed GDP grew an annual 3.5% in the fourth quarter of 2022, bolstered by the tertiary sector and continuing yet tapering strength in manufacturing. And while consumer confidence rose in January for the first time in eight months, consumers continued to grow more pessimistic as to how the Mexican economy is likely to perform in the next 12 months.

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