Mexico unveils a realist fiscal package for 2016

Significance

President Enrique Pena Nieto's government will maintain its policy of continuous but relatively mild fiscal tightening, following the 2016 budget proposal submitted to Congress on September 8. The fiscal deficit should peak in 2015 at 3.5% of GDP, and despite the plunge in oil prices and meagre economic growth, is expected to fall to 3.0% of GDP next year.

Impacts

• Amid the economic uncertainty of Latin America, the Mexican economy will continue to perform relatively well.
• Any unexpected fiscal blows, such as a further plunge in oil prices, will be confronted with spending cuts rather than tax increases.
• The government should have no problems issuing debt in international capital markets, but Pemex's borrowing costs may increase.
• Meagre economic growth during 2015-16 could damage Pena Nieto's already low public approval ratings.