Certainly, the approved amount of federalized spending for 2023 is positive for the public finances of subnational governments. In fact, it is very likely that we will see this good news reflected in their annual budgets, and this is due to the fact that, traditionally, they are prepared and approved based on the amounts established in the PEF.
Despite this, in my opinion, congresses and councils should continue to be very careful when allocating and exercising their local budgets, just as they did in 2021 and 2022.
In real terms, the budget for federalized spending would be 9.9% higher than that approved in the 2022 Federal Expenditure Budget (PEF). In this sense, Ramo28 would grow around 14.0%, while Ramo 33 would grow by 6.7%
However, in the case of participations (revenues not labeled for states and municipalities), it is important to remember that these depend on the amount of Participable Federal Revenue (RFP) that is effectively collected during the current fiscal year. Without considering the creation of taxes and rights, nor the increase of the existing ones, the RFP is expected to register an annual growth of 13.5%.
Although my expectations are aligned with the idea that our economy will continue to recover, the volatility in some economic variables (domestic and external) could create favorable conditions for growth at a slower rate than that considered by the federal government.
This could lead us to collect less of the RFP than the approved amount and, consequently, states and municipalities could receive fewer resources. For this reason, continuing with prudence in the exercise of spending by subnationals is recommended.
If we see prudent management of public finances over the next year, we could expect a flat scenario in terms of the credit quality of states and municipalities. However, even with this good performance, it must be said that in the medium term one of the issues to consider for the following years will be the level of public investment that they make or fail to make; and this is important, since it would determine, in part, the long-term growth of the subnationals.
Building on this argument, according to the results of the Quarterly Indicator of State Economic Activity for 2Q22 published by INEGI, 13 of the 32 state economies in the country have not yet managed to recover from the economic contraction generated by the health emergency; therefore, a further slowdown in public investment would contribute to a slower rate of recovery.