Published On: Sat, Sep 17th, 2016

Mexico scrambles to cut spending under shadow of credit downgrades

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Weak growth, low oil prices and difficulties in making promised spending cuts all threaten Mexico’s push for a budget surplus next year as credit rating agencies consider downgrading its debt, Reuters reports.

After running primary budget deficits since 2009, Mexico on Thursday Sept. 8 pledged to turn a projected primary deficit of 0.4 percent of gross domestic product into a surplus of 0.4 percent of GDP next year.

Standard & Poor’s and Moody’s put Mexico’s credit outlook on negative this year, flagging concerns that weak growth could keep pushing up debt after a collapse in oil prices hit Mexico’s income from crude sales.



Jaime Reusche, Moody’s senior analyst on Mexico, said higher-than-expected income from tax reform passed in 2013 had helped offset the decline in oil income. But if tax revenue doesn’t hold up, the government may not meet its targets.

“The budget continues to signal consolidation and that may indeed be favorable for maintaining the rating where it is, but the proof is in the pudding,” he said on Friday.

Mexico’s austere 2017 budget lays out deep cuts that fall heaviest on the education, communications and transportation and agriculture ministries. The government proposed cuts worth nearly 240 billion pesos, or about 1.2 percent of GDP, compared to the 2016 budget.

Moody’s and S&P are concerned that debt as a proportion of GDP could keep rising in the coming years.

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