Deterioration of public finances casts shadow over Mexico's credit rating

Mexico's finance ministry sent congress its general pre-criteria for economic policy in 2025 on Wednesday, in which it forecasts slower growth in the economy and lower oil revenues.

This, coupled with a budget deficit of 5% and a debt above 50.2% of GDP, leads Gabriela Siller, head of economic analysis at Grupo Financiero Base, to predict possible cuts to Mexico's sovereign rating.

“Mexico's public finances show a considerable deterioration [which] threatens Mexico's debt rating and makes the exchange rate more vulnerable to a rebound,” Siller said on Thursday on social media. “Fiscal deficits are related to inflationary pressures, high interest rates and currency depreciations,” she added.

The economist highlighted that, in addition to the growth in Mexico's deficit and public debt, there is greater vulnerability of public finances due to the reduction in stabilization funds, which have dipped to below 20% of the levels they were at in 2018, when President Andrés Manuel López Obrador's government took over.

According to the finance ministry document, the macroeconomic variables suggest GDP growth of between 2% and 3% for next year, with a specific estimate of 2.5%, which would imply a slowdown from the estimated 2.5-3.5% growth in 2024.

The government estimates that the price of oil will see a drastic drop, sliding from US$71.3/b this year to an average US$58.4b in 2025, which would result in a 13.5% drop in oil revenues compared with this year.