EconomyFEIEF as a budget compensation tool

FEIEF as a budget compensation tool

(Expansión) – The Income Stabilization Fund of the Federal Entities (FEIEF), created in 2006, aims to compensate the budgetary imbalances suffered by the subnational public treasuries, generated by a reduction in the Participable Federal Collection (RFP) and , therefore, in the participating funds of Ramo 28 linked to it.

We are well aware that the compensation provided for the states and municipalities via FEIEF resources is possible, as long as the federal government’s estimate of the RFP approved in the Federal Income Law (LIF) is not met in relation to the amount observed. In this sense, suffice it to say that the RFP observed in 2019 was 2.8% lower than the approved amount; while for 2020, the negative difference reached 8.8%. In 2021, the observed and approved figure are technically the same.

Due to these differences, and reviewing the annual closure of state public accounts, the amount of income received by all the federal entities via the FEIEF for 2019 was approximately 29,910.0 million pesos (million pesos), in 2020 it was 70,517.0 million pesos and for 2021 was equal to 9,952.0 million pesos. With what has been said so far, we can conclude that the FEIEF has fulfilled the objective for which it was created, especially in 2020 when economic activities and consumption were limited due to the pandemic. In other words, the FEIEF did manage to give greater certainty to the budgetary exercise of all the states and municipalities of the country in the short term.

Regarding what was observed from January to July 2022 for the RFP, we can say the following: the figures indicate that the collection is 16.5% above the amount registered in the same period of 2021 (in nominal terms) and in relation to the annual RFP approved in the LIF 2022 (3.7 billion pesos -bp-), it has an advance of approximately 58%. In my opinion, the good behavior of tax revenues is the result of the good collection of the Income Tax, which is around 12.2% above what is foreseen in the LIF 2022.

In addition, let us remember that collection has benefited in some way from the subcontracting reform, collection efficiency and the regularization and simplification of procedures for taxpayers. Bearing this in mind, and assuming that this behavior is maintained for the rest of the year, we could expect that for the current fiscal year the FEIEF mechanism will not be activated or that the use of its resources will be minimal.

Now, it is easy to understand that the behavior of the economy is important for the performance of the RFP, given that the economic dynamics is closely related to the taxes collected. Greater economic growth should increase collection and, with it, would increase the possibility of reaching the level of income budgeted and approved by the Congress of the Union annually.

Likewise, let us not forget that variables such as the production of oil products, the price of a barrel of the Mexican export mix (MME) and the peso-dollar exchange rate, positively or negatively affect the income of the federal government and, consequently, the resources which are distributed to the states and municipalities. If these variables behave better than the economic package of the federal government supposes, we should see, on the one hand: 1) better collection and with it more resources for the states and municipalities, and 2) excess income that, according to the law in force, could be partially transferred to the stabilization funds, including the FEIEF.

A growth of the economy of 3.0%, an inflation of 3.2% and a price of the MME around 68.7 dollars, are some of the assumptions that the economic package proposal for 2023 sent on September 8 considers. With this, the federal government expects to obtain budget revenues of 7.1 billion pesos (against what is expected for the end of 2022 of 6.2 bp). This without considering the creation of new taxes or the increase of existing ones. For this reason, the growth in tax collection would be based only on the continuity of the SAT inspection programs (4.6 bp are expected).

Finally, I would like to comment on the following. Although our country has recorded revenues in excess of the collection amounts approved in the LIF 2022 in recent months, mainly driven by collection efficiency and a better price per barrel of oil, it must be remembered that these resources are not fully transferred. to the stabilization funds. In fact, according to the Federal Budget and Treasury Responsibility Law, a good part of these surpluses already have a specific destination. Hence, they have been used to subsidize fuel prices. In the end, if after covering all the destinations defined in the law there are remnants of these excess revenues, 25% would be transferred by the SHCP to the FEIEF.

In this sense, we must mention that the balance of the FEIEF in 2019 (pre-pandemic) was 60,459.0 million pesos, while in the first half of 2022 it was equal to 20,934.0 million pesos. Certainly, this decrease in resources responds to the activation of the compensation mechanism that we mentioned above, as well as to the payment of other expenses that the fund can make by law. However, we must also say that the FEIEF has received income year after year. In 2021, revenues totaled 3,463.0 million pesos and only in the first half of 2022, this amount rose to 5,521.0 million pesos.

Editor’s Note: Roberto Ballinez is Senior Executive Director of Public Finance and Infrastructure at HR Ratings. Follow him on . The opinions expressed in this column belong exclusively to the author.

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