Mexico’s Spend On Fuel Subsidy Is Double Its Oil Exports Revenue

Mexico's

Mexico faces budget pressures as it now spends double the money on subsidizing domestic fuel to keep inflation in check than the money it receives from exporting oil, even at prices above $100 per barrel.

Mexico’s spending on gasoline and diesel subsidies is set to be $2.39 billion this month, according to estimates by Bloomberg Economics’s Felipe Hernandez.

Mexico, which has pledged to keep the increase in fuel prices lower than the inflation rate, faces growing government costs to keep fuel prices in check amid surging fuel prices internationally.

Per Bloomberg Economics estimates, Mexico’s government of leftist President Andrés Manuel López Obrador is spending twice the money on fuel subsidies than it is getting from oil export revenues.

While expenditure on gasoline and diesel subsidies is set to exceed $2.3 billion in May, the revenues from the oil exports of PEMEX, the state oil firm, are expected at half of that amount, $1.04 billion, calculations by Bloomberg Economics’s Felipe Hernandez show.

In April, Mexico’s Deputy Finance Minister Gabriel Yorio told Reuters that the higher oil export revenues at the high oil prices would pay for subsidizing domestic gasoline and diesel prices.

“So we’re literally going to have to use the surplus to finance the additional subsidies,” Yorio said.

Mexico’s budget and fiscal risks are tilted to the downside, Fitch Ratings said last month, commenting on the country’s 2023 budget guidelines.

“Higher oil-related revenue will compensate for lower gasoline-related tax collection if the Mexican oil price mix remains below an annual average of USD100/bbl. Above this threshold, higher subsidies needed to maintain gas prices in line with inflation will outweigh oil-related revenue increases,” the credit rating agency said.

“Notably, oil-related revenue estimates hinge on the government’s projection that Pemex will be able to increase oil production by 4% in 2022. However, raising production will prove challenging given Pemex’s financial constraints and high capital spending needs,” Fitch said.

Source: Oilprice.com