By Stefanie Eschenbacher

MEXICO CITY, Sept 8 (.) – Mexico faces a tricky balancing act in its 2021 budget: reviving an economy hit hard by the coronavirus pandemic while sticking to President Andrés Manuel López Obrador’s promises of austerity.

When Finance Ministry officials present the budget bill to the lower house of Congress later Tuesday, debt investors from both Mexico and its state oil company Pemex will examine spending priorities.

López Obrador is an outlier among rich and emerging nations, insisting on strictly limiting spending even in the face of economic destruction from coronavirus lockdowns.

The economy that López Obrador promised to revive is in the deepest recession since the Great Depression of the 1930s. Mexico’s central bank recently warned that it could contract to nearly 13% this year.

While Brazil has squandered an additional 6.5% of its Gross Domestic Product (GDP) on expenses, including unemployment benefits, which reach a third of its citizens, Mexico’s spending balance has deteriorated by less than 1% during the pandemic.

The Mexican president has shown no signs of changing course, arguing that his discipline will leave healthier finances when the dust settles, while ruling out more taxes or new social programs.

Carlos Serrano, a Mexican economist at the country’s largest bank, BBVA, said a countercyclical fiscal policy would be more appropriate now.

« This is not the time to implement an austere fiscal policy, » Serrano said in an interview. « This should be accompanied by an announcement of a fiscal reform that will take effect once the pandemic crisis is over and that will help finance additional spending, » he said.

Erasmo González, who chairs the budget committee of the Chamber of Deputies, told . that there would be a primary deficit in 2021, without going into details. Budget guidelines released earlier this year projected a primary deficit of 0.6% of GDP.

Mexico was already in a mild recession before the epidemic.

In the central bank’s most optimistic scenario, Latin America’s second-largest economy will be smaller by the end of next year than before the pandemic struck America. It may only make a full recovery in 2022.

Even without additional borrowing, the debt-to-GDP ratio has increased by more than 10 basis points as the economy contracted and the peso weakened.

Rating agencies, which stripped Pemex of investment grade this year and warned that Mexico’s sovereign debt could suffer the same fate, are on the lookout for signs of a future tax reform and strategies to curb the oil company’s borrowing.

Lisa Schineller, lead Latin America analyst at Standard & Poor’s, said that in addition to its usual focus on fiscal budget results, the agency was very interested in plans to recover from the impact of the coronavirus. (With additional reporting by Sharay Angulo and Abraham González, edited by Frank Jack Daniel)