Mexico Trims Fiscal Deficit 28.4% Amid Economic Cooling

Mexico’s federal government reduced its fiscal deficit by 28.4% through the end of October, according to the Ministry of Finance and Public Credit (SHCP). The improvement comes amid ongoing fiscal consolidation efforts and a slowing economy.

In its October Report on Public Finance and Public Debt, the SHCP, led by Édgar Amador Zamora, reported that the Financial Requirements of the Public Sector (RFSP) reached MX$918.7 billion (US$50.29 billion), a 28.4% decline compared to the same period last year.

Fiscal Performance and Debt

The SHCP said fiscal balances outperformed program targets:

• The budgetary deficit was MX$206 billion lower than expected.

• The budgetary primary surplus reached MX$240 billion, exceeding annual goals.

• The RFSP totaled MX$919 billion, remaining within limits approved by Congress.

The government aims to reduce the RFSP to 4.3% of GDP this year, down from the record 5.7% level reached last year due to increased borrowing for major infrastructure projects. However, the projected 4.3% deficit is higher than the SHCP’s original target of 3.9%.

The Historical Balance of the RFSP (SHRFP), the broadest measure of public debt, stood at 51.1% of GDP.

Spending and Budget Execution

Total public spending reached MX$7.634 trillion, a 1.7% annual increase. However, the SHCP reported an under-execution of MX$88.1 billion compared with programmed spending through October.

Excluding September’s support for Petróleos Mexicanos (Pemex) to repurchase debt, public spending would have totaled MX$7.380 trillion, a 1.7% annual decline. The administration of Claudia Sheinbaum increased spending in September after a year of cutbacks and under-execution linked to fiscal consolidation.

Functional Spending Shifts:

• Government expenditure and economic development spending fell by 14.5% and 4.6%, respectively.

• Social development spending grew by 3.4%.
  Within social development, spending declined in environmental protection (33.9%), culture (15.8%) and health (2.8%).

Financial Costs and Intergovernmental Transfers

Debt-servicing costs totaled MX$1.023 trillion, a 7.9% annual increase, though MX$51.8 billion below programmed levels.

Programmable spending—resources allocated to goods and services for the population—reached MX$5.173 trillion, a 0.2% decrease. Non-programmable spending (excluding debt-service costs) grew by 5.9%.

Federal transfers (participaciones) to states and municipalities rose 6.4% in real annual terms, exceeding the schedule by MX$16 billion thanks to stronger shared federal revenue.

SAT Surpasses Revenue Target with Large-Taxpayer Audits 

Mexico's Tax Administration Service (SAT) collected MX$300.47 billion in secondary revenue through audits and enforcement actions targeting large taxpayers in the first nine months of the year—4.3 times the SHCP’s MX$69.58 billion goal. Large taxpayers are defined as those with annual income above MX$1.5 billion.

In September, the government released Mexico’s 2026 Economic Package, reinforcing the need for fiscal consolidation after 2024’s deficit of 5.7% of GDP. The government forecasts the deficit will fall to 4.1% by 2026, stabilizing debt at 52.3% of GDP.

The outlook includes projected GDP growth of up to 2.8% in 2026,  inflation easing from 3.8% to 3.0% and interest rates dropping from 7.3% to 6.0%. Analysts warn the projections may be overly optimistic given structural challenges, including declining productivity and rising debt-service costs, which now absorb 4.1% of GDP—more than combined health and education spending.

The package also raises consumption taxes through higher IEPS on sugary drinks and tobacco and introduces stricter oversight and withholding rules for digital commerce and fintech platforms.