Mexico’s Fiscal Deficit Raises Concerns

Mexico's 2024 Federal Economic Package, recently delivered to Congress by the Ministry of Finance and Public Credit (SHCP), has raised concerns due to its significant fiscal deficit. While the package aims to strengthen the foundations of the transformation project initiated by the current administration in 2018, as stated by SHCP, its budgetary deficit has caused unease among experts.

The package forecasts a budgetary deficit of 4.9% of the national GDP, a level not seen in approximately three decades, according to the Mexican Institute of Finance Executives (IMEF). This substantial deficit has the potential to send negative signals to investors, to create challenges in combating inflation and to even pose a risk to the country's credit rating. The government will spend more than it generates through both tax and non-tax revenues, excluding debt financing. IMEF has expressed concerns about the impact of this deficit on the macroeconomic environment in Mexico in the coming years. This deficit, it says, sends a very negative signal to both domestic and foreign investors.

In the 2024 General Economic Policy Guidelines, the government anticipates economic growth between 2.5% and 3.5%, coupled with record-breaking expenditures of MX$9.06 trillion and public revenues of MX$7.3 trillion, a decrease of 1.8% compared to the current year. This level of indebtedness, as a percentage of GDP, is projected to rise from 46.5% in 2023 to 48.8% in 2024.

Previously, the Center for Economic and Budgetary Research (CIEP) emphasized the need for tax reform in the country. It pointed out that public revenues are similar to 2018 levels, indicating minimal progress in terms of generating public income.

At present, credit rating agencies such as Moody’s, S&P Global and Fitch Ratings maintain a stable outlook on Mexico's investment grade. However, the persistent budget deficit and concerns over Mexico's ability to manage its finances have raised doubts among financial experts about the sustainability of this outlook.