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Government presents 2004 budget to Congress
On 6 October, the government presented the 2004 budget to Congress, which
now has 60 days for approval. According to the government, the economy
will advance at a slower rhythm this year than expected in the original
budget but approximately as outlined in the last report to Congress in
July. The Finance Ministry expects that the economy will grow 3.4% in 2003
and that year-end inflation will reach 2.6%.
Government optimistic about economic growth in 2004
For 2004, the government expects economic growth to be between 4.0% and
5.0%, which is in line with the Central Bank’s projection. The government
believes that the improvement over this year will result mostly from
improved external conditions, the effect of counter cyclical monetary and
fiscal policies and a pick-up in domestic demand, as private sector
confidence improves. In fact, domestic demand is expected to grow above
5.0%, due to buoyant private sector investment. For the calculation of the
budget the government used a growth rate of 4.4%. The budget assumes
current revenues will grow by 4.9% compared to the 2003 revised budget
figures. The over-proportional increase in projected revenues reflects the
rising copper price, which is expected to average US$ 0.83 for the year.
Furthermore, higher copper sales volumes and a reduction in operating
costs of mines should also benefit the budget. Total spending, on the
other hand, is set to increase by 4.3% in real terms. As a result, the
Finance Ministry projects the central government deficit to reach 0.6% of
GDP in 2004, down from 0.8% of GDP estimated for this year. Both years’
deficits are consistent with the 1% structural surplus rule (details see
September 2003 edition of the LatinFocus Consensus Forecast). While the
Consensus Forecast is bang in line with the government’s 2003 fiscal
target, participants are a notch more optimistic than the government for
2004, expecting the deficit to come in at 0.3% of GDP.
Consumer prices rise moderatly in September
In September, consumer prices increased 0.19%. The actual reading was
below expectations, which had seen prices rising by 0.34% in September.
The September rise in consumer prices was mostly due to higher prices for
cigarettes and public transport as well as rising costs for medical
inputs. Food and household equipment prices, on the other hand,
experienced declines. The moderate price development observed in September
prompted a further decline in the annual inflation rate from 2.9% in
August to 2.2% in September. In March this year, annual headline inflation
had peaked at 4.5%. However, the downward trend is likely to end soon.
Based on the Consensus for monthly inflation, annual headline inflation
should drop to 2.0% in October but rise to 2.3% in November and jump to
2.9% in December. In part, the year-end spike in consumer prices is due to
the 1.0% rise in the value-added tax (VAT), which entered into force on 1
October 2003. Given an anticipated year-end acceleration in headline
inflation, the Consensus inflation figure falls just a notch short of the
Central Bank’s year-end forecast. In its September Monetary Policy Report,
the monetary authority projected year-end headline inflation of 3.0%,
right in the centre of its 2.0% to 4.0% target range. Just as the
Consensus, officials also expect the same inflation rate for the end of
2004, albeit with large fluctuations during the year, as reflected by the
notable divergence from average inflation of 2.4% expected for 2004. |
