Mexico City.– Claudia Sheinbaum’s Administration has the objective of reducing the country’s fiscal deficit from almost 6 percent of the Gross Domestic Product (GDP) in 2024, to a range of between 3.0 and 3.5 percent for the 2025 Economic Package through fiscal consolidation, however, analysts question the Government’s mechanism to achieve it.
Fiscal consolidation refers to the process by which the public deficit is reduced through spending cuts or increases in public revenue.
“We believe that the authorities are going to try to have this fiscal consolidation, but we see it as practically impossible to reach 3 percent of the deficit by 2025. Rather, we see that it can be reduced to around 3.9 percent,” said Gabriela Siller, director of economic analysis at Base financial group. In an event organized by Bloomberg, Siller specified that a deficit is the difference between expenses and income, which is supposed to not exceed 3 percent for any country so that the debt-to-GDP ratio is more or less constant.
For this year, the Government has projected a budget deficit of 5 percent and seen through its broadest measure, through the Public Sector Financial Requirements (RFSP), this increases to 5.9 percent, the highest since the end of the 1980s.
“So cutting the deficit implies a fiscal reform, although the authorities do not say so. They have to cut spending or increase income,” commented the directive. However, he indicated that if the Ministry of Finance carries out good planning in the 2025 Economic Package and externalizes its plans to reduce the deficit in coming years to rating markets, the country could be saved from a degradation in its credit profile. Regarding the next spending structure in 2025, the specialist urged the Government not to continue punishing infrastructure resources, since the simplest thing is always to cut physical investment spending, which ends up affecting the economy more.
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