Mexico's Budget Deficit Outlook for 2025

By Anthony Esposito and Ana Isabel Martinez
MEXICO CITY (Reuters) – Mexico expects its budget deficit next year to drop to 3.9% of GDP as growth increases, announced Finance Minister Rogelio Ramirez de la O on Friday. The government plans significant spending cuts to areas including defense and security.

Economic Growth Projections

Latin America's second-largest economy is projected to expand between 2% and 3% in 2025, compared to an anticipated 1.5% to 2.5% growth in 2024 based on the proposed budget. This forecast exceeds the IMF's outlook, which estimates growth at just 1.3% for 2025.

The government faces pressure to reduce a deficit expected to close at 5.9% of GDP, the highest since the 1980s, while also fulfilling commitments to enhance welfare programs. The finance ministry notes that growth is supported by a strong labor market, robust private consumption, and substantial public and private investment.

Concerns Over Projections

Nonetheless, some analysts believe these forecasts may be overly optimistic. Gabriela Siller from Banco BASE stated, "The rosy estimates make it unlikely that the deficit and debt forecasts are reached," citing risk factors such as the potential re-election of former President Donald Trump in the U.S., which could lead to tariff increases on Mexican goods, and constitutional reforms that worry investors.

Ramirez de la O emphasized that spending would prioritize programs aimed at promoting growth and reducing inequality. The proposed budget is set to be debated in Congress, where President Claudia Sheinbaum's party holds strong majorities in both chambers.

Currency and Oil Price Projections

The exchange rate for the Mexican peso is expected to reach 18.7 pesos per U.S. dollar by the end of 2025, a significant improvement from current levels of around 20 pesos. The budget anticipates an average oil export price of $57.80 per barrel next year — a critical figure for estimating government revenue.

Spending Cuts in Various Sectors

Proposed spending cuts indicate a deprioritization of certain sectors, including a 44% reduction in defense spending and a 36% cut in security. Environmental spending is also down 39%, despite expectations that Sheinbaum would place higher importance on environmental issues. Funding for state oil company Pemex is expected to decrease by 7.5%, while the government aims to transfer 136 billion pesos ($6.69 billion) to help manage the company's debt and loan obligations.

Analysts at CIBanco noted that the budget proposal meets expectations, reflecting a considerable deficit reduction without raising concerns about a potential recession. They also suggested the positive economic outlook might alleviate investor fears.

Ratings agencies are expected to respond to these developments next week, with a potential outlook downgrade from Fitch being possible. Moody's downgraded Mexico's outlook to "negative" just a day prior.