September 9, 2015 / 12:06 AM / 4 years ago

UPDATE 1-Mexico proposes to cut spending in 2016 amid oil slump

(Adds details on budget cut, growth, oil output)

By Luis Rojas

MEXICO CITY, Sept 8 (Reuters) - Mexico’s government will dial back spending next year in the name of austerity amid a drop in oil income, Finance Minister Luis Videgaray said on Tuesday.

Videgaray said the government proposed to lawmakers to reduce the 2016 deficit, excluding investments by state oil company Pemex and other items, to 0.5 percent of gross domestic product from 1 percent this year.

Lower oil output and uneven exports to the United States have dragged on Latin America’s No. 2 economy this year.

A deep drop in global oil prices pushed Mexico to announce in January budget cuts for 2015 equal to about 0.7 percent of GDP. Videgaray said the 2016 budget would be 1.15 percent of GDP less than 2014 spending.

He also said that President Enrique Pena Nieto had nominated Central Bank Governor Agustin Carstens to serve another six-year term. Carstens’ term ends in December.

The proposal projected the economy will grow between 2.6 percent and 3.6 percent next year compared to an expected 2.34 percent in 2015 seen by analysts in the latest central bank poll from last week.

The government cut back its projections of oil output, from 2.4 million barrels per day forecast in March to 2.247 million in Tuesday’s proposal. It projected an average price of $50 per barrel for Mexican crude next year.

Last month, the government said it had bought put options to hedge a chunk of its oil exports at $49 per barrel.

The government traditionally relied on income from oil sales by state-run company Pemex to fund about one-third of its budget.

But due to the drop in oil prices and output, combined with stronger tax income following a fiscal reform in 2014, oil revenue made up about one-fifth of income in the first half of 2015, according to data on the finance ministry website. (Reporting by Luis Rojas Mena and Michael O’Boyle; Editing by Simon Gardner and Cynthia Osterman)

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