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Mexico proposes generous social budget; bets big on oil

MEXICO CITY — Mexican President Andrés Manuel Lopez Obrador’s proposed budget for next year would continue his commitment to social spending for the elderly and youth and funnel more resources to the state-owned oil company Pemex.

But some analysts see the 6.1 trillion peso ($312 billion) proposal’s assumptions on economic growth and oil production as optimistic.

López Obrador said Monday that the budget, which was presented to Congress’ lower chamber on Sunday, was possible because of the government’s austerity measures and crackdown on corruption.

“We’re also going to rescue Pemex,” the president said. “Oil production has already been stabilized. Something that hadn’t been achieved in 14 years has already been done in nine months.”

The government continues to bet big on struggling Pemex. It will give the company 46 billion pesos ($2.4 billion), as well as 40 billion pesos ($2 billion) in tax breaks.

On Monday, ratings agency Moody’s warned that Pemex’s investment-grade status is in jeopardy. The agency had changed its outlook for Pemex to negative from stable in June.

Gabriela Siller with Banco BASE noted that the budget proposal assumes economic growth of 1.5% to 2.5% in 2020, but this year’s growth estimate had been reduced to 0.6% to 1.2 %.

Mexico’s central bank recently reduced that forecast even more to 0.2%-0.7%. The first half of the year has yielded growth of only 0.2%.

Mexico’s original treasury secretary, Carlos Urzua, resigned in July, complaining of the appointment of unqualified officials and suggesting an ideological disagreement with the president.

His replacement, Arturo Herrera, said Monday that Mexico’s tax agency would be strengthened to meet the proposed budget’s assumptions of higher tax collections.

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