Mexico’s Congress passed the revenue side of next year’s budget after lowering its forecast for the price of oil to account for volatility in global crude prices.
The lower house today passed changes approved last night in the Senate, sending the bill to President Enrique Pena Nieto for enactment. The Senate Finance committee this week lowered its estimate for oil exported by Mexico next year to $79 a barrel from the $81 originally passed by the lower house earlier this month. The government had projected the price to be $82 in its budget proposal on Sept. 5.
Mexico is seeking to reduce the deficit in 2015 and erase it in coming years after increasing spending this year in an effort to boost an economy that grew 1.4 percent in 2013, the least since the 2009 recession. Pena Nieto also pushed through an overhaul last year to open the state-controlled energy industry to private investment and lessen the government’s dependence on oil revenue that funds about a third of federal spending.
“The volatility that we’ve seen in recent days in the price of oil makes clear the wisdom of Mexico’s energy reform and the fiscal measures that have reduced the dependence of public finances on the price of oil,” Manlio Fabio Beltrones, the lower house leader for Pena Nieto’s Institutional Revolutionary Party, said on Radio Formula before the chamber’s vote today.
The deficit would narrow to 1 percent of gross domestic product next year from the 1.5 percent approved for 2014 if Mexican President Enrique Pena Nieto’s spending bill is passed unchanged by the Nov. 15 deadline. The spending bill only requires lower house approval. The budget assumes economic growth of 3.7 percent for next year, which would be the fastest since Pena Nieto took office in 2012.
Mexico’s mix of oil closed at $78.31 per barrel yesterday and has fallen 24 percent from a 2014 high in June. Brent crude for next month delivery, a global benchmark, has fallen 25 percent since June to $86.03 a barrel as global demand growth slows while threats to supply in Iraq and Libya recede.
The budget doesn’t include any new taxes or increase existing duties. The government at the start of the year raised the sales tax in areas bordering the U.S., a move opposed by the National Action Party, or PAN, the second-biggest group in Congress after Pena Nieto’s party. Consumer confidence in January tumbled to the lowest level in almost four years. The PAN advocated unsuccessfully in this year’s budget debate for Mexico to lower taxes.
The government forecasts economic growth will accelerate in 2015 from 2.7 percent this year after Pena Nieto ended Petroleos Mexicanos’s oil monopoly and opened the telecommunications industry to more competition. His administration expects the moves will lift growth to about 5 percent starting in 2016.
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