(Reuters) - Mexican President Andres Manuel Lopez Obrador on Monday defended deep cuts to social spending in his 2019 budget in areas such as the national public university, saying the savings trimmed waste.
His new leftist government unveiled the proposed budget on Saturday.
Here are some reactions from analysts:
“We do not see space for a meaningful reduction in the debt-to-GDP ratio in the medium term and in fact, the new administration projects the historical public sector borrowing requirements to remain unchanged at 45.3 percent of GDP next year. This is an issue that will be watched carefully by credit rating agencies, but the OK budget, in our view, will buy the government some time before the credit rating agencies make any decisions.”
“The budget keeps spending growth in line with the fiscal rule and signals fiscal discipline, although on the tax revenue side there may be less room for outperformance than in recent years. Where the budget allocates extra money for priority projects, it does so by cutting spending elsewhere.
“Our negative outlook reflects risks around broader policy uncertainty, for example as regards the implementation of the energy reform, as well as medium-term economic performance and the contingent liability from Pemex [PEMX.UL].”
KATHRYN ROONEY VERA, HEAD OF RESEARCH AND EMERGING MARKET STRATEGY AT BULLTICK
“I just got back from Mexico and the pessimism from institutional investors is extreme. There’s also a divergence in sentiment. Local pessimism is extreme whereas I know accounts in the U.S. are already investing in Pemex, in the equity market ...
“Is there value? Yes there is. Am I fundamentally bullish on the Mexican economy? No.
“The airport deal is going to hurt FDI (foreign direct investment) going into Mexico. It is already a stagnant economy, grows at a very low grade of expansion. That said, valuations are really attractive right now.”
“Some key spending and revenue assumptions may be overly optimistic, and we also have reservations about the ultimate implementation of the plans.
“We think the pledged spending cuts mean fiscal deterioration and a rating downgrade is less likely near term.”
“The budget is a positive surprise for the market ... Still, with emerging markets under pressure more broadly, and the seasonals for the Mexican peso very poor in late December, we would not chase any strength of the Mexican peso late in the year.”
Reporting by Rodrigo Campos in New York and Michael O'Boyle in Mexico City, Editing by Rosalba O'Brien