The strange logic of the MEF budget project

It was a few days ago The Ministry of Economy and Finance presented to the Assembly its draft general state budget for fiscal validity from 2024. It proposes a total cost of B/. 32,754.6 million, which is a high enough figure that it is necessary to carefully analyze the foundations on which it was built, as well as the possible difficulties it shows in relation to the public debt problem.

Although it is not explicitly stated, if one considers the amount allocated to education and the percentage it would represent in nominal GDP, it can be determined that it is an assumption that nominal GDP for 2024, this would assume a value of B/.81,928.6 million. With this, budget expenditures would practically reach 40.0% of the forecasted GDP.

If the reference is taken IMF nominal GDP forecast for 2023, the assumption on which the budget for 2024 was built implies a growth of this indicator of approx. 6.0%. If taken as a possible increase in the deflator GDP implicit With 2.0% (inflation), it is assumed that the economy would grow only 4.0% in real terms, a figure well below the secular growth rate of our economy, which is around 5.0%.

That would be a problem in itself, because it is known that our economy must grow at this last figure if the unemployment rate does not increase. The total current income of the non-financial public sector appears with the amount of B/.17,750.7 million, of which B/.11,571.3 million would come from Central government.

The problem in this case lies in the low capacity collection presented by DGIwhat is addiction MEF, in terms of current revenues of the central government. In this way, accumulated until June, the direct revenues of the central government during the current year are 12.0% lower than the budget. If this situation continues next year, the direct revenues of the central government would be lower by B/1,388.6 million. This is a real possibility, especially considering the inability of the current government to reduce it tax avoidance.

In the case of the situation as stated above, the current surplus for the non-financial public sector projected at B/. 858.1 would become a deficit of B/,530.5 million. This would lead to having to decide between reducing spending, affecting the level of economic activity, increasing the public debt or making effective efforts to reduce tax evasion in the private sector, which is around 11.0%. of GDP.

Resorting to public credit is already showing serious problems. In the current budget project, debt servicing reaches 5,757.3 million B/0, which represents 17.6% of total costs. Moreover, if we take into account that the new credit agreements are budgeted for 0.8475.5 million B/, it can be concluded that by deducting from these new loans what has to be paid debt service, the whole operation will represent a net financing of only B/. 2,717.7 million. This means that the government is already using 69.7% of what it borrows to pay the debt.

It would be evident from the above that the state would have to find a way to improve tax collection, for which there is no need, at least immediately, to raise tax rates. You should just enforce the tax laws in order to achieve this goal. It seems that this is not the path of the current government.