What's Cooking in Mexico's 2024 Financial Pot?

The unveiling of Mexico's 2024 Economic Package by the Ministry of Finance and Public Credit (SHCP) heralds the end of the current administration's financial management. With public finances under the microscope, the Mexican Institute for Competitiveness (IMCO) delves into the critical components of this economic blueprint, shedding light on the nation's economic trajectory and fiscal strategies.

General Economic Policy Criteria 2024

The General Economic Policy Criteria (CGPE) for 2024 lays out the foundation for Mexico's fiscal strategies. Here are the key takeaways:

Economic Growth: Mexico anticipates a growth rate between 2.5% and 3.5% in 2024, in line with previous government projections.

Inflation: An average inflation rate of 3.8% is forecast for 2024, well, within the Bank of Mexico's target range.

Interest Rates: The estimated interest rate stands at 10.3% for 2024. A 100 basis point increase could translate to a 30,500 billion peso hike in non-programmable public sector spending.

Exchange Rate: Expectations hover around 17.1 pesos per dollar, potentially impacting oil revenues. A 20-cent appreciation could reduce oil revenues by 7.5 billion pesos.

Oil Prices: The 2024 estimate for oil prices is 56.7 dollars per barrel, marking a 12-dollar drop from 2023.

Federal Revenue Law Initiative 2024

The Federal Revenue Law Initiative (ILIF) for 2024 proposes a total of 9.07 trillion pesos, a real increase of 4.2% compared to the previous year and an 18% increase from 2019. Of this total, 7.3 trillion pesos come from regular revenues, while 1.7 trillion pesos are derived from financing (debt).

The significant increase in debt-derived revenue, up 41% in real terms, is a result of low tax collections and gloomy projections for oil revenues, which are expected to plummet by 24% compared to 2023.

Contributions from Products are on the rise, while Transfers, allocations, subsidies, and other aids are declining. This is attributed to a lower estimate for oil barrel prices and a decrease in the rate of the Shared Utility Right paid by Pemex to the State.

Direct Budgetary Control Entities and State Productive Companies (Pemex and CFE) are expected to see higher Social Security Fees and Contributions, accounting for 5.9% of budgetary revenues, with an 8% real increase over 2023.

Public Social Security Institutions and State Productive Enterprises, however, face a 6% real drop in revenues due to a 122 billion peso decrease in Pemex's earnings.

2024 Federal Expenditure Budget Proposal

The 2024 Federal Expenditure Budget Proposal (PPEF) foresees a 4.3% real increase compared to 2023, reaching 9.07 trillion pesos. Programmable Spending, which supports federal government institutions, rises by 3.9% in real terms. Non-Programmable Spending, fulfilling obligations like public debt, increases by 5.0%, representing an additional 121.8 billion pesos.

Notable changes in specific branches include:

Secretariat of National Defense: Gaining 142.1 billion pesos for the Mayan Train project, formerly overseen by the Secretariat of Tourism.

Ministry of Energy: Allocating 171 billion pesos to the “Coordination of Energy Policy in Hydrocarbons” program.

Ministry of Welfare: Anticipating a 109.4 billion peso budget increase for the Pension Program for the Elderly.

On the flip side, the Ministry of Tourism faces budget cuts due to the transfer of Mayan Train responsibilities to SEDENA, and the Ministry of Health suffers a staggering 55.8% real reduction.

Autonomous bodies see varying budgets in the PPEF 2024, with the National Electoral Institute (INE) standing out with a projected budget of 37.8 billion pesos, marking a 78.2% increase over 2023.

Priority investment projects, constituting 2.5% of the total budget, are set to reach 222.7 billion pesos, with the Mayan Train receiving a substantial allocation.

What Lies Ahead: Approval Timeline

The Congress of the Union holds the fate of the Economic Package. Key dates include:

• October 20: Deadline for approval of the Federal Income Law Initiative (ILIF) in the Chamber of Deputies.
• October 31: Deadline for approval of the ILIF in the House of Senators.
• November 15: Deadline for approval of the Federal Expenditure Budget Bill (PPEF), an exclusive power of the Chamber of Deputies.

In conclusion, Mexico's 2024 Economic Package paints a complex financial landscape with shifts in revenue sources, expenditure priorities, and the fate of critical projects. The nation's economic growth and fiscal stability hinge on the decisions made by its lawmakers in the coming months. Stay tuned for in-depth analyses on income, autonomous powers, social programs, investments, infrastructure, and more facets of the 2024 Economic Package. Mexico's financial future is at a crossroads, and the choices made now will shape its trajectory for years to come.