May 29, 2009 / 1:15 AM / 8 years ago

UPDATER 1-Mexico cuts budget by 35 bln pesos as recession hits

* Spending cut equal to a little over 1 pct of budget

* Cuts come despite plan to support economy with spending (Adds details on budget, quote from statement)

MEXICO CITY, May 28 (Reuters) - Mexico’s finance ministry said on Thursday it was cutting 2009 federal spending plans by 35 billion pesos ($2.64 bln) to shore up public finances battered by the country’s deep recession.

The cuts amount to little more than 1 percent of the 3.045 trillion peso 2009 budget but come as the government of President Felipe Calderon has been trying to offset Mexico’s economic downturn with government spending.

However, the government has been struggling with a sharp decline in non-oil tax revenues.

“Mexico has faced severe external economic turbulence in recent months, most recently the H1N1 influenza epidemic. As a consequence, the government has decided to adopt savings and austerity measures,” the finance ministry said in a press release.

The savings are to come from personnel and administrative costs. The cuts will not affect social spending or government capital investments, the ministry said.

Mexico’s gross domestic product plunged by 8.2 percent in the first quarter of the year as the U.S.-focused export sector was slammed by the U.S. recession.

The H1N1 flu outbreak led to the near complete shutdown of many businesses in the capital and other major cities at the end of April and the beginning of May. The epidemic is also expected to hit Mexico’s important tourism industry hard in the short term.

Finance Minister Agustin Carstens recently suggested Mexico could adopt a policy of trying fiscal balances to the economic cycle, a move analysts say is likely the first step to running a bigger deficit in 2010.

The government plans to run a deficit equivalent to 1.8 percent of gross domestic product this year. ($1 = 13.25 pesos) (Reporting by Robert Campbell; editing by Carol Bishopric, Gary Hill)

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