Mexico’s government said on Friday, November 15th, that it will narrow the fiscal deficit next year even as President Claudia Sheinbaum pledges to boost social programs and support the heavily indebted state driller Petroleos Mexicanos.
According to Bloomberg, the administration will target a budget gap equivalent to 3.9% of gross domestic product in 2025, less than an estimated 5.9% shortfall for this year, according to the proposal that Finance Minister Rogelio Ramirez de la O presented to Congress. The ministry sees a primary fiscal surplus — which excludes debt payments — at 0.6% of GDP next year, from the forecast deficit of 1.4% in 2024, according to the plan which requires lawmakers’ approval.
The peso pared some of its earlier gains, trading 0.1% weaker at 20.38 per dollar as of 3:45 p.m. in New York.
Mexico’s public coffers are coming under pressure due to constant aid to Pemex, as the state oil company is known, as well as the expansion of welfare programs and infrastructure projects including train routes. That spending has prompted some economists to doubt Sheinbaum, who had said before Friday the government would seek a budget gap of 3% to 3.5% of GDP next year.
The broad financial support to Pemex will continue, as the government will transfer 136 billion pesos ($6.7 billion) to the state company to cover debt payments in 2025, according to the draft. The total resources proposed for the driller next year total 464 billion pesos ($23 billion), with an estimated surplus of 249 billion pesos, up from the surplus of 145 billion pesos in the 2024 draft.
Pemex, which relies on government cash injections and tax reductions to stay afloat, has around $9 billion in debt coming due next year and roughly $13 billion in 2026. Sheinbaum’s administration is looking to address Pemex’s nearly $100 billion debt load without having the company turn to capital markets in the short term, the president said on Wednesday.
Infrastructure Projects
Mexico’s 2025 budget includes a range of infrastructure projects, with the expansion of the country’s railway system as a priority, according to Ramirez de la O. The plan foresees the continuity of social programs that characterized the government of former head of state Andres Manuel Lopez Obrador, the minister said.
Priority social programs will have an allocated budget of 835.7 billion pesos. The budget’s top projects include 189 billion pesos mainly for train lines, with some money set aside for improvements to water infrastructure.
Mexico’s new Agency of Digital Transformation and Telecommunications will help modernize tax payment systems and optimize customs revenue, as the government continues to pledge not to raise taxes, according to the plan.
The budget also proposes increasing some fees such as the ones international visitors pay for airport services to face the rise in demand for migratory services as well as upgrading the infrastructure of the National Migration Institute.
The administration has also slashed spending in other areas. The draft budget allocates 152 billion pesos for defense, a 41% decrease from the 259 billion pesos set aside for 2024.
Economist Skepticism
The Finance Ministry sees the Mexican economy growing 2% to 3% next year, Ramirez de la O said. That estimate is higher than that of the central bank, which in August cut its 2025 GDP forecast to 1.2%.
“Achieving growth between 2% and 3% in 2025 will require help from the private sector, increased hiring of personnel, and growth in fixed investment,” something unlikely due to the caution generated by the constitutional reforms recently approved by Congress and the promise by US President-elect Donald Trump to increase tariffs on products exported by Mexico to that country, said Gabriela Siller, head of economic research at Grupo Financiero Base.
Before Friday, Ramirez de la O had said there wouldn’t be a repeat of the 2024 deficit, which is the widest since the 1980s. This year’s expenditures rose as the government sought to complete infrastructure projects during Lopez Obrador’s last months in office, and they don’t represent recurring spending, he had said.
Some analysts remain skeptical. There are hurdles that could lead to a deficit above 4% next year, including the lack of a fiscal consolidation plan and spending commitments to public entities and social programs, JPMorgan economists Gabriel Lozano and Steven Palacio wrote in a note Thursday.
Some economists also questioned government estimates of public debt at 51.4% of GDP in 2025. Tax collection will also reach 14.6% of GDP, Ramirez de la O told lawmakers on Friday.
“Overly optimistic forecasts make it unlikely that the projected deficit and debt will be achieved, increasing the likelihood of a sovereign credit rating downgrade,” Siller said.
The plan’s adjustment relies on a significant squeeze of current and capital spending and a maximum cut in non-capital spending, Alberto Ramos, chief Latin America economist at Goldman Sachs Group Inc., wrote in a note. He added that revenue could disappoint given that the real GDP growth is likely overestimated by at least 1.5%, but the administration may eventually benefit from a more depreciated peso and higher oil prices.
“Overall, a tough, but not impossible, budget to execute,” he wrote.
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