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The next government and Mexicans will have a difficult economic environment II – El Financiero

The signs are very clear that during the coming years the Mexican economy will have great challenges and problems to face. On the international stage, the various storm clouds that hinder the normal course of trade between nations and capital flows continue to increase, whether it is the conflict between the two great economic powers of the world, the war in Ukraine that threatens to spread to other areas, as well as the situation in the Middle East. In addition to this is climate warming, which is reflected in important modifications in normal weather patterns, which is reflected in unexpected droughts in different parts of the planet, as well as excessive rains and floods in other places, all of which harms production. , thus raising the prices of products.

Within our country, it is worth highlighting the deterioration of public finances, in what I call the structural fiscal deficit. The current government has created numerous cash support programs for the population, which are not adequately funded with additional resources. This will cause a greater fiscal deficit in the coming years, which cannot be corrected easily.

As a result of the above, the government deficit in 2024 will be close to or even higher than 6 percent of GDP and the public debt will be above 50 percent of GDP. Although some consider that it is not relevant because it is inferior to what other nations have with a level of development and qualification similar to ours, do not take into account three considerations: 1) The peso has strengthened, so the debt denominated in foreign currencies foreign exchange is reduced by putting it in national currency, which will be reversed to the extent that the Mexican peso weakens. 2) Large investment projects, such as the Maya Train, the Dos Bocas refinery, as well as Pemex and CFE, will require high amounts of resources to operate, as long as they do not modify their operating models. 3) The domestic debt service has a high cost, due to high interest rates, which is equivalent to what countries that have twice as much debt pay.

All of the above is reflected in pressures in financial markets, high interest rates for consumers and companies, increases in the prices of items produced within the country, loss of competitiveness of our exports, all of which influences lower economic growth. , as well as lower job creation.

To face this difficult environment, several measures should be taken simultaneously, highlighting the following: 1) Recognize that it is not possible for the Central Bank alone to control inflation, without the corresponding support of public finances. While the Bank of Mexico raises interest rates to reduce liquidity in the money markets, the federal government increases it with its fiscal imbalance. Countries that stand out for achieving low inflation have little deficit or even surplus in public finances, as has happened in Switzerland, Denmark or even Mexico in past decades. 2) Once the fiscal imbalance is controlled, it would be possible to reduce interest rates without having an impact on higher inflation, with all its economic benefits. 3) A fiscal policy is required that promotes the growth of companies, by providing incentives for the reinvestment of their profits, as well as facilitating the payment of taxes to the informal economy, in order to include them in the circle of productive production. There is abundant literature on this matter, highlighting the case of the Nordic countries, where reductions in tax rates translated into increases in tax collection, which can serve as an example.

The elections on June 2 will define the type of government that will be had in the coming years. We citizens will decide for a government that promotes growth and the creation of wealth and employment or one that promotes spending and subsidies.

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