It is positive that the new administration recognizes the need to reduce the public deficit – the difference between income and expenditure – and begins to chart the route to execute fiscal consolidation, financial sector analysts said when commenting on the presentation of the first Economic Package of Claudia Sheinbaum‘s government.
They also approved the fact that the Ministry of Finance and Public Credit (SHCP) has explicitly published its plan for Petróleos Mexicanos (Pemex) to comply with all its debt payment obligations.
However, they considered that the growth projections presented by the new administration are optimistic.
“The 2025 Economic Package is characterized by the beginning of a gradual process of fiscal consolidation. A lower fiscal deficit will promote greater stability in the ratio of public debt to GDP in the future, but the optimistic assumption of economic growth makes us predict that the fiscal deficit will end up being somewhat higher than budgeted,” BBVA said in an analysis carried out for his area of economic studies.
He indicated that the sign of gradualism in the fiscal consolidation process, added to the fact that the government may soon consider the implementation of a fiscal reform, are two positive aspects.
“It is also positive that there is again explicit support to ensure that Pemex will be able to meet its financial obligations in 2025. That said, in our opinion it would have been more positive to propose a somewhat larger fiscal deficit with a more moderate assumption of economic growth.” , argued BBVA.
He explained that given the foreseeable fragility in public finances in the coming years due to the pressures derived from social programs, the continuous support for Pemex, the deterioration of infrastructure due to lack of maintenance, the financial cost of debt and payment of public pensions, it will be necessary for the next federal government to design and implement a tax reform that increases tax revenues.
“There is also concern about the reduction in the budget in the areas of education and health, which are the ones that can contribute the most to improving the population’s standard of living in the long term. Tax reform is also necessary to reverse these reductions, considering the reduced fiscal space that the government now has. The sign that it is an issue that has already been discussed and for which steps are planned is positive,” BBVA said.
And he mentioned that “it would be even more desirable for this reform to be far-reaching, seek to reduce informality and contemplate greater efficiency in the execution of public spending.”
For its part, the economic studies area of Citibanamex released a special note in which it described as good “the implicit recognition of the need to reduce the public deficit… Although the trend of deterioration of public finances in the years is not explicitly admitted recent events and the consequences that this implies, it is mentioned that these will be managed prudently, and that to mitigate economic risks the deficit will be reduced.”
“The bad thing is the optimistic assumptions and the sacrifices for fiscal consolidation… The ugly thing is that the debt will continue to increase with the implications that this entails,” argued Citibanamex.
He added that it is difficult to anticipate whether or not this will contain a fiscal reform, but it is expected that, if there is a real commitment to the sustainability of public finances, this is how it should be.
“Although the decision to postpone the announcement of a possible tax reform this year allows us to fulfill a campaign commitment, it comes at the cost of lack of information for economic agents. In this sense, we estimate that the country risk variables will remain high and that the rating agencies will continue to change the outlook for sovereign debt from stable to negative,” Citibanamex added.
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#Positive #start #fiscal #consolidation #BBVA #Citibanamex
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Guest 1: Good morning, thank you for having me here today. As a financial analyst, I would like to share my thoughts on the new administration’s Economic Package released recently. Could you tell us your opinion about the government’s plan for fiscal consolidation and the reduction of the public deficit? Do you think it’s a positive step forward?
Guest 2: Of course, it’s always a pleasure to share our thoughts. As Citibanamex Financial Studies mentions in its note, the start of fiscal consolidation is positive and necessary. However, the optimistic growth projections and sacrifices required for this process are questionable. In your opinion, what measures do you think should be taken to ensure a sustainable path towards fiscal stability?
Guest 1: Do you agree with BBVA’s analysis that the explicit support for Pemex’s debt payments is a positive move? How can we ensure that future governments continue to prioritize debt repayment for state-owned enterprises like Pemex?
Guest 2: Yes, I do agree with BBVA on this point. It’s good to see explicit support for Pemex’s debt payments. However, we need to ensure that future governments are also committed to this path. One way could be through constitutional reform or permanent spending limits. Additionally, we must consider the impact of reduced budget allocation for education and health. What are your thoughts on this?
Guest 1: Speaking of tax reforms, Citibanamex warns about the postponement of its announcement this year. Do you think it will be difficult for the government to implement a comprehensive tax reform in the current environment? How important is this for long-term fiscal stability?
Guest 2: That’s a valid concern raised by Citibanamex. The postponement of the tax reform announcement reduces transparency and creates uncertainty. It’s crucial to address informality and improve tax collection to achieve fiscal sustainability. What measures do you suggest should be included in the reform?
Guest 1: BBVA mentions the need for a gradual approach to fiscal consolidation and possible future reforms. In your opinion, should the government focus on short-term stabil
