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Fiscal balances still in surplus in the second quarter
In the first half, the public sector’s overall balance accumulated a
surplus of 62.2 billion pesos (US$ 5.9 billion), 147.2% higher in real
terms than the surplus registered in the same period last year. According
to the Finance Ministry, the higher surplus was attributable to the
favourable oil price developments and an increase in non-recurrent
revenues. However, both factors were of temporary nature only. In fact,
the beneficial impact of the oil price abated in the second quarter, when
the price for the Mexican oil mix in international markets was unchanged
over the same period last year, while in the first quarter it had still
been more than 50% higher compared to the previous year. Therefore, public
finances could deteriorate in the second half of the year. The recent
Supreme Court ruling also casts an additional shadow over public finances.
The Court ruling declared the substitute tax to the salary credit as
unconstitutional and could erode revenues further. Finally, the
modifications to the fiscal laws approved by Congress that were not
incorporated to the Revenue Law for 2003 could have a negative impact in
tax collection for the remainder of the year. Nevertheless, Consensus
Forecast panellists have lowered their fiscal deficit forecast for this
year from 0.53% of GDP expected last month to 0.51% of GDP, since public
finances currently have a comfortable cushion because first half revenues
were 50.0 billion pesos (US$ 4.7 billion) higher than projected in the
2003 budget.
Current account deficit shrinks amid higher transfers
In the second quarter, the current account balance registered a deficit of
US$ 1.5 billion. The deficit was well lower than the first quarter deficit
of US$ 2.2 billion and almost half the US$ 2.8 billion recorded in the
second quarter 2002. In fact, the deficit was the lowest since 1997. The
improvement over last year’s second quarter current account deficit was
less due to a lower deficit in the trade balance but more due to a higher
surplus in the transfer balance, which mostly records transfer from family
members in the United States. The surplus in transfers increased 30.5%
from US$ 2.7 billion in the second quarter 2002 to US$ 3.5 billion this
year. However, the increase only partially indicates higher inflows.
According to the Central Bank, the increase in transfers mostly reflects
better accounting coverage of these types of transactions. That said, the
transfers from Mexicans outside of the country are playing an increasingly
important role in the Mexican economy. In the second quarter, these
transfers exceeded direct investment flows and were more important than
tourism proceeds, accounting for three quarters of oil exports and 2% of
GDP.
As a result of the second quarter figure, the annual current account
deficit reached US$ 11.5 billion - the lowest level since 1998. Consensus
Forecast panellists have reflected the improvement in the country’s
external balances by lowering the 2003 current account deficit forecast
from US$ 14.0 billion expected last month to the current US$ 13.4 billion.
Large shifts in portfolio investment dominate capital account
The capital account registered a surplus of US$ 2.4 billion, well
sufficient to cover the current account gap. Even though the second
quarter capital account surplus was less than half the US$ 7.0 billion
first quarter surplus, the figure was slightly above the surplus recorded
in the same quarter last year. Sudden shifts in portfolio investment flows
are increasingly dominating the capital account balance. In the second
quarter last year, US$ 3.5 billion of portfolio investment left the
country, reverting to a US$ 3.2 billion inflow in the first quarter this
year, only to revert back to a US$ 0.8 billion outflow in the second. The
more long-term foreign direct investment flows (FDI) also show large but
less erratic shifts. In the second quarter, US$ 2.6 billion entered the
country as FDI, below the US$ 4.0 billion observed last year.
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