Will the López Obrador government be able to maintain the balance of public finances in 2022? The doubt takes place because the pans of the balance are shifting. We will have higher costs of servicing the public debt due to the sharp increases in interest rates, those of the Fed and those of the Bank of Mexico; There will also be pressure on public spending due to the gasoline subsidy and the general increase in costs associated with inflation.
As icing on the cake, tax collection faces a complicated scenario, among other things due to the adjustment in economic growth forecasts. Tax revenue grew from $3 trillion in 2018 to $3.5 trillion in 2021, despite the fact that the economy did not grow. The SAT team, led by Raquel Buenrostro, has done a very efficient job, but it will be difficult to keep up in 2022.
Perfect storm, they call this type of situation in which a rare confluence of circumstances dramatically aggravates the situation. The fact is that one of the pillars of macroeconomic stability of the AMLO administration is in check. In many things he has been unpredictable and unorthodox, but when it comes to balancing public finances he has been as orthodox as Ernesto Zedillo and much more rigorous than Carlos Salinas. This achievement is something that rating agencies highly value when granting a rating to a country’s debt. It is one of the factors that explains the relative strength of the peso against the dollar.
Why speak of check, if the price of oil is at a maximum for 14 years… the Mexican mixture above 100 dollars per barrel? Not everything has to do with black gold. We must consider that interest rates in the United States had been at zero since 2019 and now it seems that they will close the year at 2% percent. This will put Banxico in a position to bring the reference rate to levels close to 9 percent. These moves will put pressure on the budget. Debt service takes one out of every five pesos of spending.
Let’s go back to the oil and gasoline accounts. The government stopped entering 104,000 million pesos due to the fiscal stimulus granted to gasoline in 2021. In 2022, spending could be three or four times higher. The first unofficial estimates refer to a figure of 350,000 million pesos. To put it in perspective, this is equivalent to three times what has been spent at the Felipe Ángeles airport and would be enough to pay for the full-time school program that the SEP canceled for 29 years. It is not necessary to keep the account of 350,000 million pesos, because the final number will depend on how long the war in Ukraine lasts and the restructuring that occurs in the oil market.
Mexico will have higher oil revenues, but also higher expenses for the purchase of oil products. In January there were an additional 832,000 dollars a day for every dollar that the price of oil rose, because exports were 832,000 barrels a day. In total, in the first month of 2022, Mexico obtained oil revenues of 2,422 million dollars. In return, we made purchases abroad of 4,600 million dollars, of petroleum products.
January’s $2.178 billion deficit in the oil balance is one of several signs that Mexico has ceased to be an oil powerhouse and is now vulnerable in a context of high black gold prices. We became one of the top eight producers in the world and now we are hardly number 15. We are the smallest producer in the North American region because the United States and Canada produce more oil than Mexico. The Americans produce more than 11 million barrels a day while Canada is around 4.6 million barrels. Mexico is struggling to break the ceiling of 1.7 million barrels per day, far from the 3.4 million produced in 2004.
There are gray rhinos on the prowl. A gray rhino is an event that is likely and would have a big impact, but it is ruled out because we are not taking it seriously enough. Public finances will be very pressured by the rise in rates and the increase in gasoline subsidies. It will not necessarily be offset by better oil prices or the efforts of the SAT. Forget black swans, watch out for rhinos.
General Editorial Director of El EconomistaSafe
Degree in Economics from the University of Guadalajara. He studied the Master of Journalism in El País, at the Autonomous University of Madrid in 1994, and a specialization in economic journalism at Columbia University in New York. He has been a reporter, business editor and editorial director of the Guadalajara newspaper PÚBLICO, and has worked for the newspapers Siglo 21 and Milenio.
He has specialized in economic journalism and investigative journalism, and has carried out professional stays at Cinco Días in Madrid and San Antonio Express News, in San Antonio, Texas.
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