(Reuters) - Mexico’s new leftist government unveiled on Saturday its proposed budget for 2019, an announcement that was regarded as avoiding major surprises and preaching fiscal discipline in Latin America’s No. 2 economy.
Investors are closely scrutinizing details of the budget due to questions about the economic competence of Andres Manuel Lopez Obrador, whose performance during the five-month transition since his July election has caused concern in financial markets.
Here are some reactions from analysts to the budget:
Citigroup (C.N) analysts, led by Ernesto Revilla:
“The budget is a positive surprise for the market. Consensus was one of solid macro headline numbers, coming together with spending promised of around 2 percent of GDP, financed by highly questionable assumptions on expenditure cuts. With spending promises now amounting at only 1 percent of GDP, the budget must have become more credible.
“Furthermore, rating agencies will be kept at bay for at least the next six months or so, as it would take meaningful slippage versus the plan to trigger downgrades. This may also mean that any Pemex downgrade would at the very least come later than expected.
“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. On rates we are more positive, as the VAT cut and the change of the gasoline pricing framework will help with the inflation fight.”
Banorte (GFNORTEO.MX) analysts, led by Gabriel Casillas:
“As we expected, the proposed 2019 economic package of the new government is fiscally responsible both on the ‘cover’, and in the details.
“It does not increase the deficit of 2.5 percent of current GDP, as of not increasing the debt, proposing a primary surplus of 1.0 percent of GDP.
“The allocations of public spending to social programs are reasonable and in line with the campaign promises.
“We do not find projected reserves in the budget for potential payments for the cancellation of the [new airport]. In speeches, interviews and talks with investors, the SHCP team has commented that they will use the funds of the airport group in Mexico City, so we believe that in the short term it is not a relevant risk.
“We believe that the market reaction will be positive.”
Alberto Ramos, head of Latin American economics, Goldman Sachs (GS.N):
“On balance, realistic underlying macro assumptions, a respectable 1 percent of GDP primary surplus.”
“No major expansion of overall spending, seems AMLO’s drive to boost investment will be rolled out gradually.”
“We are somewhat less comfortable with the projected 0.7 percent of GDP decline in operational expenditure, and the projected 0.3 percent of GDP increase in non-oil tax revenue.”
Benito Berber, analyst at Natixis (CNAT.PA):
“In our view, the 2019 budget proposal looks realistic, to the extent that the macro assumptions are in line with market expectations. It is also fiscally prudent. But we have to look for the details to see how credible it really is.”
Reporting by Michael O'Boyle in Mexico City and Rodrigo Campos in New York; writing by David French in New York; editing by Chris Reese