Congress passes $343 bln budget

Friday, 15 November 2013
BY NACHA CATTAN
AND ERIC MARTIN
Bloomberg News


MEXICO CITY – Mexico’s Congress authorized the widest budget gap in four years as President Enrique Peña Nieto seeks to boost growth in Latin America’s second-biggest economy from the slowest pace since the 2009 recession.

The lower house approved early Thursday morning the 2014 spending plan of the budget, which calls for 4.47 trillion pesos ($343 billion) in outlays. Next year’s budget, which forecasts a deficit of 1.5 percent of gross domestic product, now goes to Peña Nieto for signing. The 2014 gap compares with a 0.4 percent deficit planned by the government for this year.

Peña Nieto’s push for higher deficit spending next year is part of his plan to jump-start the $1.18 trillion economy by ending the state’s 75-year oil monopoly and increasing tax revenue. The budget, along with new levies passed by Congress last month, will help boost spending in critical sectors such as infrastructure to revive growth that has lagged the regional average over the past decade, according to Alexis Milo, chief economist at Deutsche Bank Securities in Mexico City.

“The fiscal program for 2014 will have a positive impact on short and long-term growth” so long as the additional spending goes into infrastructure as expected, Milo said in an emailed response to questions before the budget vote. “Infrastructure spending is fundamental.”

Mexico’s economy will grow 3.5 percent in 2014 compared with an estimated 1.2 percent this year, according to the median estimate in a Nov. 5 Citigroup survey.

The extra yield investors demand to hold Mexico’s dollar- denominated debt instead of U.S. Treasuries rose five basis points, or 0.05 percentage point, through yesterday to 217 basis points since Peña Nieto’s Sept. 8 deficit request, according to JPMorgan Chase’s EMBI Global Diversified index.

In the same period, Brazil’s extra yield climbed nine basis points to 252 basis points.

Finance Minister Luis Videgaray has pledged to boost public spending by 30 percent in 2014 after a balanced budget approved for this year led to spending cuts.

The budget “is part of the goal set by this administration to direct the course of transformation in Mexico to the path of growth, job creation and improved social conditions,” Raymundo King de la Rosa, a lawmaker from Peña Nieto’s Institutional Revolutionary Party (PRI), said in a speech on the lower house floor.