PULSE NEWS MEXICO

By the year 2023, Mexico’s public debt is expected to reach 1.08 trillion pesos, representing an increase of 29.9 percent compared to the 2022 budget, according to a breakdown of President Andrés Manuel López Obrador’s (AMLO) new proposed annual economic package.

The 2023 package, which was presented by the AMLO administration to Congress on Thursday, Sept. 8, for approval, amounts to a whopping $8.3 trillion pesos and is heavy skewed in favor of the president’s pet social programs such as seniors pensions and youth projects.

If approved — and the package is expected to be easily passed — the total budget for 2023 will be 11.6 percent higher in real terms than the budget approved for 2022.

The 2023 Expenditure Budget Proposal contemplates higher interest rates, includes the financial cost of debt servicing, commissions and federal public debt expenses for the state-run energy interests Petróleos Mexicanos (Pemex) and the Federal Electricity Commission (CFE), both heavily depend on government funding for their survival.

As a result, Mexico’s Finance Secretariat will be forced to divert funding from other sources, such as education and health, as it has done throughout the four years of the López Obrador administration.

“Obviously, this puts pressure on spending and is associated with the high interest rates that go hand-in-hand with the high levels of inflation that we are observing. That takes away room for maneuver within the Finance Secretariat in programming spending,” said Alejandro Saldaña, chief economist at the Ve por Más financial institute.

For the coming year, a higher accumulated real interest rate of 6 percent is estimated compared to the 1.7 percent rate used in the 2022 Expenditure Budget, which will increase expenditures associated with support programs for savers and investors.

Notwithstanding, that interest rate is expected to be even higher, so the debt increase will also be higher.

Saldaña also said that the government’s rosy prediction of a 3 percent growth rate in 2023 would be hard to realized given “the fragility associated with inflation, the increase in high interest rates, the cooling of the global economy and low levels of investment in recent years.”