Proposed 2024 budget includes more interest payments, and less investment
A first look at the proposed 2024 budget does not seem to show substantial changes from the budgets adopted since 2021, with a deficit target of 3.1% of GDP. But with an expected reduction in the tax burden for 2024, to 15% from 15.8%, fiscal space to address higher debt interest payments (3.6% of GDP) has been created through a drastic reduction in capital spending (2.1% of GDP) for 2024. This spending would be lower in nominal terms than the budget executed in 2022, and would also be the lowest since 2003.
The medium-term outlook is no more promising; interest payments are estimated to reach 3.8% of GDP in 2027, and capital spending will remain at 2.2%. Primary spending is also reduced, falling from an expected 15.8% in 2023 to 15% in 2024, and to 14.25% in 2027, as the government aims for fiscal consolidation to cut the deficit to 2.6% in 2027. How much the economy’s medium-term growth potential will be affected is an open question.
This year will probably be remembered for having one of the weakest economic expansions (1.5%-2.5%) of the last three decades, although the economy is performing better than during the banking crisis of 2003, the Great Recession of 2009 or the 2020 pandemic. For 2024, the outlook is more encouraging, with GDP growth expected to be 4.5%, and maintenance of inflation within the target range of 4 ± 1. However, there is uncertainty regarding development of the conflict between Israel and Hamas, and its impact on oil prices and global economic growth.
Now read on...
Register to sample a report