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Government cuts expenditures to achieve fiscal deficit target
The Finance Ministry also reported that based on preliminary
information for the first three months of the year, revenues are expected
to be 17 billion pesos (US$ 1.9 billion) lower than budgeted. The revenue
shortfall is primarily attributable to lower than programmed oil-related
revenues. In addition, the strength of the currency reduced the peso value
of foreign currency denominated oil revenues, exacerbating the revenue
shortfall. Finally, the lower than expected dynamism of economic activity
during the last quarter of 2001 has lowered tax collection to below
projected levels.
In accordance with the automatic budget stabilizers, the government
announced that it will adjust public sector expenditures to compensate for
the anticipated shortfall in budgetary revenues. In total, the government
will cut spending by 10.1 billion pesos (US$ 1.1 billion). The lion share
of the savings (7.9 billion pesos) will come from the central government
agencies and public sector entities. An additional 2.2 billion pesos will
be squeezed out of the Program to Support the Strengthening of Federal
Entities (PAFEF). The government anticipates that the remaining 7 billion
peso revenue shortfall expected for the first quarter will be compensated
for by higher than programmed revenues in the second quarter. In
particular, oil related revenues are estimated to be 6.9 billion pesos
higher than expected for the April-May period. Panellists believe the
government will keep its pledge to fiscal discipline.
Annual inflation drops further in March
In March, consumer prices increased 0.51%, lowering annual headline
inflation from 4.8% in February to 4.7% in March. Core inflation, which
excludes the more volatile items rose by 0.46% in March. As a result, the
annual core inflation rate dropped from 4.7% in February to 4.6%,
continuing the steady downward trend observed in the past years.
Panellists have maintained their year-end inflation forecast unchanged
from last month and are thus almost in line with the Central Bank target.
Interest rates reach historic low
The benign inflationary environment has prompted a continuous drop in
interest rates. On 9 April, the rate on the benchmark 28-day Treasury
bills (Cetes) fell 0.37 percentage points compared to the auction the week
before to 5.84%, the lowest rate ever achieved at a Central Bank auction.
Despite the historic low interest rates, the Mexican peso continues strong
and even briefly traded at less than 9 to the US$ in early April before
closing at 9.14 to the US$ on 12 April. This has prompted exporters to
criticize the Central Bank for what they consider an exceedingly tight
monetary policy. However, given that interest rates have just reached
record lows – real interest rates are currently barely above 1% -- the
Central Bank dismisses this criticism. Nevertheless, on 12 April the
Central Bank eased monetary policy by lowering the so-called corto (the
target level for accumulated balances in the accounts of the commercial
banks at the Central Bank) by 60 million pesos (US$ 6.6 million) to 360
million pesos. Despite the easing, the current monetary setting seems
unsustainable and panellists expect the peso to lose some of its strength
and interest rates to increase.
Note:
The above text is an abridged version of the LatinFocus Consensus Forecast
briefing on Mexico. For more details please click here.
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