Moody: The federal government's 2021 budget is not sustainable

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The Mexican Treasury Secretary, Arturo Herrera, defended the budget for 2021 on Wednesday, calling the growth estimate for next year responsible while the rating agency Moody's warned that the government's austere approach is not sustainable.

The Ministry of Finance presented to the Chamber of Deputies on Tuesday a budget proposal that seeks to limit spending and forecasts a partial recovery for the second largest economy in Latin America, which had already entered a recession before the covid-19 pandemic.

However, Ariane Ortiz-Bollin, a Mexico analyst at Moody's said, the tight budget meant the rating agency was now more concerned about Mexico's economic growth than debt. Actually it is not a very optimistic estimate in fact if you think that there is going to be an 8% drop and on that 8% drop a growth of 4.6%, it does not even put us at the levels we were in 2019. We it seems that it is a responsible estimate defended Herrera. It is not sustainable. It cannot be repeated every year (…) it is a limitation.

Moody's, along with other rating agencies, has Mexico one notch away from losing its investment grade rating but Ortiz-Bollin said, the country's sovereign note is not expected to hit junk in the next 12 months. despite a negative outlook.

Herrera assured that the local economy growth estimate of 4.6% foreseen in the budget project for next year is not tied to the development of a vaccine against Covid-19 . According to the document presented, the Mexican Gross Domestic Product (GDP) would fall by 8% this year, hit by the pandemic . However, the Bank of Mexico estimates that the setback would be larger, up to 12.8%. Despite this, Herrera indicated that the local economic recovery has already started after a fall of 17.1% during the second quarter of the year, the worst decline in GDP at least since 1993, the oldest date for which there is data. available.