Optimistic Budget For Mexico

Next year budget for Mexico depends in part from its oil boosting production by about 17%, something that have not been achieved for about four decades!

The Mexican national oil producer Pemex is expected to increase its output to 1.951 MMbpd on average next year, according to the 2020 budget plan that Mexican President Andres Manuel Lopez Abrador sent to Congress.

From July increase of 1.671 MMbbl indicate Pemex would reverse almost 15 years of consecutive production declines. The last time the company managed to reach growth was in 1982, after the start of Cantarell, a giant deposit in the Bay of Campeche that propelled oil production in Mexico for decades and is now almost depleted.

The forecast is being back up by the government based on Pemex being able to stabilize its decline that was production about 2 MMbbl two years ago. The proposal includes $4.4 billion to help Pemex via tax breaks and other measures that will support the forecast.

It is the first budget the president Lopez Obrador know as AMLO sends to Congress with his full imprint. The government had just two weeks to prepare the budget after he took office last December, which also left Congress little time to debate it.

Mexico’s lower house has until Oct. 20 to approve the revenue law, which must then be passed by the Senate by Oct. 31. The spending law, which only needs lower house approval, must be passed by Nov. 15.

Another analyst is warning to be to optimistic and risks a shortfall in revenues next year. “The production target is highly optimistic given the maturity of Pemex’s portfolio and the execution risk of their new field developments,” said Pablo Medina, vice president of Welligence Energy Analytics in Houston.

Oil revenue accounted for about 16% of federal government income in the second quarter, according to finance ministry data. That’s down from more than 30% at the start of the presidency of AMLO’s predecessor, Enrique Pena Nieto, before a tax overhaul and an acceleration in the tumble for production.

“The risk is that oil income is below expectations, in a very similar fashion to what is happening so far this year,” said Juan Carlos Alderete, economist at Banorte. “Additional spending cuts would be implemented before increasing debt, so the drag to GDP that we have seen so far this year could extend further, particularly regarding public investments.”

Will see how the forecast will be evolving in 2020