Mexico | Fiscal consolidation underway despite optimistic growth assumptions

Summary

The 2026 General Economic Policy Pre-Criteria confirm the intention of the federal government to regain fiscal discipline by setting a target of 0.6% of GDP for the primary surplus and look to achieve stability around 52.3% of GDP for public debt in 2025 and 2026, sending a positive signal.

Key points

• Key points:
• Nevertheless, the GDP growth forecasts of 1.5% and 2.1% for 2025 and 2026, respectively, are optimistic in relation to the 0.8% and 1.8% consensus forecasts of economic analysts.
• The elevated fiscal deficit of last year, the highest since the 80s, forces a fiscal consolidation and leaves the government without room to implement a countercyclical fiscal policy.
• If an economic scenario of lower dynamism more in line with the consensus forecast happens to be the case, meeting the target for the primary surplus during this year and next will be harder, making it necessary more cuts to public spending, a considerable challenge in a context of reduced fiscal space.
• In the medium term a fiscal reform and a change to the Pemex’s business model will be necessary after taking into account that pressure on public spending will continue from governmental support to Pemex, the extension of social programs, debt servicing costs and pensions’ payments. Mexico is the OECD country with the lowest tax revenue (% of GDP) and one of the lowest among Latin America nations.
• The change to the Pemex’s business model is necessary to lighten its burden on public finances. In this regard, allowing more participation of private investment to increase crude oil production in conjunction with a reduction of refining activity, given that the latter accounts for most of the financial losses.

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