By Jonathan Roeder

MEXICO CITY (MNI) - The lower house of the Mexican Congress is set for a final vote on the 2010 budget after the Finance Committee early Monday morning approved a spending bill that aims to alleviate the nation's fiscal pressures by forcing an austerity plan on President Felipe Calderon's administration.

The bill budgets total spending of 3.18 trillion pesos ($245 billion) and a deficit of 0.75% of GDP. The bill diverts 96.6 billion pesos ($7.4 billion) from the executive branch and into agriculture, infrastructure, education and health programs.

Lawmakers rejected Calderon's initial cost-cutting proposal to eliminate three federal agencies, but economists interviewed by Market News International said the bill is still in line with expectations.

Alberto Bernal, head of emerging market research at Bulltick Capital Markets in Miami, said the bill is "sufficiently similar to what the president is asking for."

Bernal said "the only uncertainty" now is whether the ratings agencies will downgrade Mexico's sovereign debt rating.

Standard & Poor's and Fitch have negative outlooks on their BBB+ ratings for Mexico. They cite over-dependence on declining oil production and the need for structural reforms.

Bernal predicted 2010 growth will be stronger than expected which could boost non-oil tax collection and help public finances.

At the end of October, lawmakers approved increases to income and value-added taxes and created a new telecommunications tax to reduce the nation's traditional dependence on oil revenue, which finances over a third of the federal budget.

The economy has been hit hard this year by a combination of lower U.S. consumption, falling remittances from workers abroad, lower oil output and prices, and a drop in tourism. GDP fell 10.3% in the second quarter. National statistics agency INEGI will report third quarter GDP Friday.

Bernal and Italo Lombardi, a Latin America economist with BNP Paribas in New York, predicted oil prices will be higher than the $59 per barrel average estimated in the budget for next year.

Lombardi said BNP Paribas is forecasting an average oil price of $75 per barrel, which would "guarantee stable debt to GDP ratio."

The full house is expected to hold a final vote on the spending bill later Monday. No changes are expected, since lawmakers have already passed their legal deadline of Nov. 15. The Senate does not vote on the spending bill.

The bill will require Calderon's administration to give Congress periodic updates on how spending has been reduced.

According to a Twitter page used by lawmakers from the powerful opposition Institutional Revolutionary Party (PRI), next year's deficit will be around 90 billion pesos ($6.9 billion), while 232.9 billion pesos ($17.9 billion) will go to servicing Mexico's debt.

** Market News International **