Reducing Mexico’s public finance deficit from the four-decade high of 5.7 percent of GDP reached in 2024 will be more complicated and uncertain than anticipated a few months ago.
This process is known as fiscal consolidation, based on lower public spending and a stable level of public debt as a percentage of GDP.
Officially, the projected deficit for the end of 2025—the first full year of President Claudia Sheinbaum’s administration—is 4.3 percent of GDP, broadly defined, that is, under the definition of the Public Sector Financial Requirements (PSFR), which reflect financing needs.
This figure is 1.4 percentage points lower than in 2024, although it is above the 3.9 percent of GDP deficit approved by Congress.
Based on the above, the Ministry of Finance proposed, in the 2026 Economic Package, which is currently being discussed in both chambers of Congress, a fiscal deficit of 4.1 percent of GDP for next year.
According to the agency, the process of normalizing the PSBR will continue in 2026, through which “a cumulative decrease of 1.6 percentage points will be achieved compared to the 5.7 percent of GDP deficit observed in 2024.”
This adjustment, if the fiscal targets set for 2025 and 2026 are met, “will not only maintain a stable trajectory for public debt, but also provide certainty (…) regarding the Mexican government’s commitment to the country’s fiscal sustainability.”
According to the Ministry of Finance, the deficit target of 4.1 percent of GDP “reflects the commitment to maintaining a stable public debt and a solid fiscal position.”
In this regard, public debt, measured through the Historical Balance of Public Sector Financial Requirements (SHRFSP), is estimated to reach 52.3 percent of GDP at the end of this year and also in 2026 and subsequent years until the end of the decade.
However, the expectations of international organizations and private analysts point to a partial and gradual fiscal consolidation, which is testing the sustainability of public finances and the country’s financial stability.
In its Fiscal Monitor, released this week in Washington during its annual meetings, the International Monetary Fund (IMF) estimates a Mexican government deficit of 4.3 percent of GDP in 2025 and 4.1 percent next year, in line with the Ministry of Finance’s updated public finance targets.
But in terms of Mexico’s net debt, equivalent to the SHRFSP, it is expected to show an upward trajectory in the coming years, from 51.6 percent of GDP in 2025 to an anticipated 54.4 percent by 2030, the final year of the Sheinbaum administration, according to IMF projections.
The baseline scenario being discounted by analysts and financial market participants is one of limited and insignificant fiscal consolidation to reduce the high debt burden by 2024.
For the investment bank UBS, the 2026 Economic Package reflects a slower pace of fiscal consolidation after notable progress in 2025, highlighting the increasing difficulty of reducing deficits in a context of weak economic growth.
In the opinion of Alejo Czerwonko, director of Emerging Markets Investments in the Americas at UBS, “Mexico is trying to rectify the fairly marked imbalances of last year,” but in 2025 “there is still much more work to be done.”
“Failure to fully comply with the fiscal consolidation expected for this year reflects rigidities in the tax and spending system,” the expert told this reporter.
“Mexico needs fiscal reform; there doesn’t seem to be the political appetite to implement it at this time, but sooner or later this will have to be carried out,” Czerwonko predicted.
The UBS specialist concludes that the country’s debt is heading in the wrong direction and the deficits are challenging, but the good news is that Mexico is not alone, as fiscal accounting challenges are a global phenomenon.
Source: elfinanciero
