April 1, 2015 / 3:18 AM / 4 years ago

Mexico to cut spending 4.3 percent in 2016 as oil slump bites

MEXICO CITY (Reuters) - Mexico’s Finance Ministry said on Tuesday it expects to cut government spending next year by 4.3 percent as revenue slumps because of a plunge in oil prices and flagging crude production.

A natural gas flare stack and distillation towers are seen at the Miguel Hidalgo refinery in Tula November 21, 2013. REUTERS/Henry Romero

The government plans to trim the 2016 budget by 135 billion pesos ($8.9 billion) from the spending level planned in 2015, according to a statement from the ministry.

The cuts follow a previously announced reduction in spending plans for 2015 that have crimped the growth outlook in Latin America’s second-largest economy as the government dials back on planned infrastructure projects.

The government cut 2015 spending in late January by nearly 3 percent, or 0.7 percent of gross domestic product, after a sharp drop in oil prices. The government relies on oil sales to fund about one-third of its budget.

Speaking on local radio, the finance ministry’s chief economist, Luis Madrazo, said there would be no more cuts in 2015.

The ministry estimated an average price in 2016 for Mexican crude of $55 per barrel, more than 25 percent below the price it has hedged its expected oil export income for 2015.

Global oil prices have slumped about 60 percent in the past nine months, which has dampened expectations that Mexico will quickly see a flood of investment into its energy sector after it opened up the oil and gas industry to private capital.

Mexican oil output has fallen to its lowest in decades. The latest forecasts projected production in Mexico, a top exporter to the United States, would come in at 2.288 million barrels per day (bpd) this year.

The government had projected that oil output would be at 2.4 million bpd this year, but output from state-run Pemex in the first three months of the year has been less than 2.3 million.

The government projected crude output would climb back to 2.4 million bpd in 2016, but that estimate was down from a previous forecast of 2.5 million.

Mexican gross domestic product growth is expected to come in at a range of 3.3-4.3 percent in 2016 after a predicted range of 3.2-4.2 percent in 2015, the Finance Ministry projections showed. The economy expanded 2.1 percent last year.

The government also said it was committed to trimming its budget deficit, anticipating the net public sector borrowing requirement would drop from 4 percent of GDP this year to 3.5 percent in 2016.

($1 = 15.2628 Mexican pesos)

Reporting by Michael O'Boyle and Luis Rojas; Editing by Alan Crosby, Bernard Orr and Alan Raybould

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