Mexico - October 2026

Despite Mexico’s plans to continue cutting the fiscal deficit next year, the pace of the reduction is proving slower than the government had initially promised as it struggles to shrink the massive budget overhang it inherited from the previous administration. The 2027 economic package that the administration of President Claudia Sheinbaum sent to congress on 8 September is aiming to shave just 0.2 percentage points off the deficit, to 3.9% of GDP. While that is down from the 4.1% projected for 2026, it is significantly higher than the reduction to 3.5% of GDP in 2027 that the government had proposed in April. 

Officials highlight that hitting the new fiscal deficit target for next year would still represent a 1.8 percentage point reduction from the 5.7% deficit inherited from the previous government of Andrés Manuel López Obrador (2018-2024), which left the country with its highest fiscal deficit since the 1980s. But progress in getting it under control has been hindered by the Sheinbaum administration’s reluctance to cut social welfare spending, the cornerstone of the political project of the ruling left-wing Movimiento Regeneración Nacional (Morena), as well as continued spending on key infrastructure projects.

“Grounded in the principles of Mexican Humanism, shared prosperity, and responsible spending, the strategy aims to generate higher household incomes, create more investment opportunities, and reduce poverty and inequality,” the government said in a statement regarding its 2027 budget plans. It added that the aim is to continue building the “Second Floor of the Fourth Transformation”, as Morena’s political project is now known, so that there can be “growth with fiscal responsibility, investment for development, and an economic policy that places the wellbeing and shared prosperity of Mexican families at the centre.”

The plan forecasts economic growth between 1.5% and 2.5% for 2027 – a higher range than the 1%-2% projected for 2026, even if it is lower than the 1.9%-2.9% it was originally predicting for 2027. The government says this growth will be driven by domestic demand, less restrictive financial conditions, greater public and private investment linked to infrastructure projects and tax incentives under Sheinbaum’s flagship Plan México initiative, as well as North American trade integration, despite ongoing challenges and uncertainty surrounding the fate of the United States-Mexico-Canada Agreement (USMCA). 

The deficit reduction will be achieved largely by cutting spending and making tax collection more efficient – crucially, without introducing new taxes, officials underlined. As a result, tax revenues will reach a “historic high” of 15.9% of GDP, thanks to measures to strengthen revenue collection, ensure tax compliance, and curb tax evasion. Investment is set to increase by more than 10% in health, education, science, and security, with heavy backing for welfare programmes including wellbeing pensions for older adults, women and the disabled, a flagship door-to-door health programme, education programmes and scholarships, and the government’s flagship tree-planting initiative. At the same time, significant funds will be ploughed into infrastructure projects like railways, roads, energy infrastructure, and water management. 

In contrast, the budget proposal slashes support for state-run oil company Pemex, as Sheinbaum continues her push to ensure that the company is financially self-sufficient, with projections that it will achieve a rare surplus next year. The government’s financial support for the heavily indebted company, which is struggling to ramp up production while focusing on costly refineries, will fall by as much as 70%, from M$263.5bn (US$14.7bn) in the last budget to just M$81.1bn to pay down debt this time. Unusually, the Comisión Federal de Electricidad (CFE), the state electricity company, will receive more in federal transfers than Pemex next year, with M$90bn. Even so, the government is still setting aside M$255.5bn for Pemex’s priority investment projects.

Private sector responses

Reactions to the budget from the private sector have been lukewarm, while recognising the government’s progress, albeit slow, towards making public finances more sustainable. Fitch Ratings, the international credit ratings agency, said in a note on 17 September that the 2027 budget proposal was “more credible” than previous budgets – if with a “less ambitious” fiscal deficit target than previously outlined – given its reliance on revenue-raising measures and “more realistic economic assumptions” which are broadly in line with private-sector forecasts and the agency’s own 1.8% growth estimate. However, Fitch warned that the fiscal consolidation path is too “mild” to stabilise the debt-to-GDP ratio, which the agency projected at around 58% in 2026, which remains a downside risk to Mexico’s BBB- rating. Fitch estimates that a deficit of around 2.5% would be needed to stabilise the country’s debt burden. 

Another major ratings agency, Moody’s, recently highlighted Mexico’s low growth – currently slumping at around 1%, well below the regional average of around 2.5% – as the main challenge to stabilising its public debt. With interest payments set to reach 4% of GDP in 2027 – Mexico’s highest level since 1990 – that will far exceed spending on public infrastructure, which is reportedly forecast at 2.6% of GDP. This will limit Mexico’s ability to build the electricity, water, and digital infrastructure that many businesses now value more than labour costs when it comes to choosing whether or not to invest in the country, according to Ariane Ortiz-Bollin, vice president and senior credit officer at Moody’s Ratings. 

Alberto Ramos, an economist at Goldman Sachs, said the draft budget was “not particularly ambitious”, pointing to “very mild fiscal consolidation anchored in further gains in tax efficiency and restrained operational spending”, while noting that the macroeconomic assumptions “do not appear excessively optimistic”. “It is a budget that will require disciplined execution, but the authorities do not seem to be overpromising, including for the post-2027 period. Overall, fiscal consolidation is expected to continue, albeit at a very modest pace, with the expected slight revenue decline after 2027 [...] offset by additional spending compression,” he wrote in a note to clients, noting that over the medium term, he expects rising spending pressures, especially from pensions. This would increase the need for a tax reform package, he added, which would be likely after the 2027 midterm elections.

Meanwhile, the business community has warned against the risks of tightening corporate tax deductions, as well as a 20% net-interest limitation, arguing that this could stifle liquidity and private investment ahead of the midterms. Responding to the economic package, the Consejo Coordinador Empresarial (CCE), which represents more than 2,000 business associations accounting for roughly 80% of Mexico’s GDP, argued that the government should prioritise maintaining the country’s investment grade, gradually reducing the public deficit, and slowing debt growth. Mexico’s leading business lobby also called for more efficient public spending, structural solutions for state-owned enterprises, and a broader tax base while clamping down on evasion and false invoicing networks.

The government’s 2027 economic package is now due to be debated in congress, where Morena commands large majorities in both chambers. The proposals are expected to be approved by lawmakers by mid-November with limited changes, with the measures coming into force at the beginning of next year.