UPDATE 2-Mexico government defends 2021 budget, Moody's says it is not sustainable

(Adds Moody’s comments)

By Abraham Gonzalez and Stefanie Eschenbacher

MEXICO CITY, Sept 9 (Reuters) – Mexico’s finance minister on Wednesday defended his 2021 budget, calling next year’s growth estimate responsible, as ratings agency Moody’s warned the government’s austere approach to public finance “was not sustainable.”

The finance ministry on Tuesday delivered a budget proposal that would keep a lid on spending and forecasts only partial recovery for an economy hammered by the COVID-19 pandemic.

“It’s a responsible estimate,” Finance Minister Arturo Herrera said at the president’s daily news conference.

However, Nymia Almeida, a senior vice president at Moody’s corporate finance group in Mexico City, said the lean budget meant the ratings agency was now more worried about Mexico’s economic growth than debt.

“It is not sustainable,” Almeida said. “It can’t be repeated every year.”

Moody’s, along with other ratings agencies, has Mexico one notch from losing its investment grade rating.

Almeida said Mexico’s sovereign rating is not expected to go to “junk” over the next 12 months despite a negative outlook.

Herrera said that while the growth forecast in the budget was not based on the development of a vaccine, the economy would continue to be impacted by the coronavirus crisis.

“While there’s no vaccine, the economy is going to keep operating in unusual circumstances,” he said.

The budget also estimated the economy would contract 8% this year, a somewhat rosier view than the central bank’s worst-case scenario of a 13% slump. (Reporting by Abraham Gonzalez and Stefanie Eschenbacher in Mexico City Additional reporting by Daina Beth Solomon and Raul Cortes in Mexico City Writing by Anthony Esposito Editing by Frank Jack Daniel and Matthew Lewis)

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