Mexico’s Fiscal Deficit To Narrow In 2025, But Debt Burden To Creep Higher

• Mexico’s fiscal deficit will widen from 3.4% of GDP in 2023 to about 5.3% this year, which would represent the weakest outturn since 1989, according to projections from Fitch Solutions.
• Data available to May have generally been consistent with the government’s revised estimates from March, with the deficit running roughly 10% below target on the back of a strong tax take (+10% y-o-y, +3% versus budget). Spending growth has been effectively in line with plan but remains robust at +22% y-o-y.
• While higher debt servicing costs are partially to blame, the bulk of this increase can be explained by a notable ramp-up in social spending and public investment ahead of general elections in June.
• There are expectations to see some moderation in expenditure growth over the second half of 2024 as several large infrastructure projects are completed, but the impact on the budget balance will be offset by softness in revenues as the economy slows.
• A pullback in spending will see the deficit narrow to 4.0% of GDP, but this would still represent an overshoot relative to the government’s target of 3.5%.
• Overall, wide budget deficits this year and next will see Mexico’s federal debt-to-GDP ratio rise from 46.8% in 2023 to 48.6% in 2024 and 49.4% in 2025, only marginally below a record high of 49.9% in 2020.

(Source: Fitch Solutions)