The Ministry of Finance of Mexico submitted the 2027 budget draft
The new budget draft of Mexico was sent to the Congress. It lowered the growth forecast for 2026, optimistic about the economic performance in 2027, plans to reduce the fiscal deficit, and slightly increases the debt.
The new budget draft of Mexico has been released.
The Ministry of Finance of Mexico submitted the latest budget plan to the Congress, which included the macroeconomic predictions for 2026 and 2027. The growth expectations for the two years have been adjusted. For 2026, the official economic growth range is set between 1.0% and 2.0%. Compared with the previous predictions, this range has been overall lowered. The previous estimate was 1.8% to 2.8%. The situation in 2027 has improved. The Ministry of Finance predicts that the economic growth range for the whole year will be between 1.5% and 2.5%.
This budget document is not just a simple economic forecast, it is also tied to a whole set of data such as fiscal revenue and expenditure, and debt scale. In 2027, the economy can accelerate, and domestic demand is the core pillar. The steady increase in household income will drive the expansion of the domestic consumption market. The improvement of the domestic financial environment, and the reduction in the cost of loans for enterprises and residents, will further stimulate consumption and investment activities. On the external front, the benefits of regional trade integration in North America will continue to be released. As an important part of the North American supply chain, Mexico's export business can continue to receive incremental orders.
The fiscal deficit has narrowed.
The plan projects the total public sector deficit at 4.1% of GDP in 2026. It will decline further in 2027 to 3.9% of GDP. Mexico's fiscal administration aims to cut the deficit. Cutting the fiscal gap means the government has to rein in spending or grow income streams, and reduce the amount of new debt issued annually. However, the contraction of the deficit does not mean a decrease in the total debt.
According to the estimated borrowing needs of the public sector, the proportion of public debt to GDP is expected to be 54.0% by the end of 2026. By the end of 2027, this ratio will slightly increase to 55.0%. The slight increase in the debt ratio however does not mean a decrease in the total debt. The debt base is still expanding. The deficit represents the annual new funding gap. As long as there is a deficit, the overall debt total will continue to increase, although the rate of increase will slow down.
The draft budget also provides a forecast of the price trend. The Ministry of Finance predicts that the core inflation level will fall to 3.0% by the end of 2027, exactly matching the inflation target set by the Central Bank of Mexico. Core inflation excludes the volatile food and energy prices, and better reflects the underlying trend of domestic prices. If this prediction comes true, it means that the Central Bank of Mexico's anti-inflation task is basically completed, and the monetary policy has greater operational space.
Pemex's financial arrangement has undergone significant adjustments.
Pemex has always been a unique part of Mexico's fiscal system and a key project in the government's budget. The federal government has cut the amount of money it will provide Pemex to pay down debt in 2027 compared with past plans. In the new budget, the funds allocated to Pemex for debt repayment in 2027 are 81.1 billion pesos ($4.8 billion). In the previous budget, this debt repayment fund was as high as 263.5 billion pesos, a large decrease. The reduction in debt repayment subsidies indicates that the government hopes to reduce the direct financial support and allow Pemex to independently improve its financial situation.
The government has not completely reduced its support for this oil giant. A separate 255.5 billion pesos has been allocated in the budget for the development of Pemex's key projects, with changes in the use of funds. The budget also estimates crude oil production, targeting 1.8 million barrels per day of liquid hydrocarbons in 2027.
Uncertainties brought by the external environment.
The most significant variable in the external environment is the North American trade environment. The Mexican economy is highly dependent on exports to the United States. If the demand in the U.S. weakens or the trade policies change, the growth in exports will fall short of expectations, dragging down the overall economy.
International crude oil prices are also an important variable. Oil prices will affect Pemex's revenue, government fiscal revenue and domestic inflation levels. The debt side also requires attention. Although the deficit is shrinking, the debt-to-GDP ratio is still rising. Once the overseas financing environment tightens, the interest costs for bond issuance by the Mexican government and state-owned enterprises will increase, exacerbating the pressure of interest payments.