Economics: The short budget leash of 2021

MEXICO - Report 21 Sep 2020 by Mauricio González and Francisco González

This week we are following up on our analysis of the López Obrador Administration’s Economic Package for 2021, which is comprised of the General Economic Policy Criteria (GEPC), the Budget Proposal and the Federal Revenue Law Initiative.

Unsurprisingly, this administration has handed us for a third consecutive year an inertial yet greatly reduced budget that reflects both the extent to which revenues will continue to be greatly limited, and a government commitment to refuse to take on any new public debt that officials will find increasingly challenging to make good on. And even deeper cuts and program cancellations are planned throughout the public sector in an effort to free up the funding needed to sustain the pet infrastructure projects and social assistance programs at the heart of the president’s governing plan: programs and projects utterly lacking in economic and social profitability and incapable of contributing to economic growth and development. In the meantime, the government intends to further starve autonomous and regulatory bodies of funding while keeping state and municipal governments on a tight leash by slashing funding.

In the document it is estimated that next year non petroleum revenues will fall a real 3% as non tax revenues are supposed to decrease by more than a real 60% as the government has already depleted non recurring funding sources such as the Budgetary Revenue Stabilization Fund. In the case of non petroleum budgetary revenues, the finance ministry is overestimating what it can raise from income, VAT and excise taxes because of its overly optimistic calculation of GDP for this year and next and the assumptions it makes regarding the relation (elasticity) of that variable and such tax collections.

Given the very complicated context for 2021 that requires a special effort to control the pandemic and reactivate the depressed economy, the administration continues to focus on AMLO’s priority programs and projects that will represent almost a fifth of total programmable expenditure when excluding pensions, conditional transfers and personal services.

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