New Mexico President Plans Gradual Fiscal Consolidation to Preserve Investment Grade Rating

Despite the change of government in Mexico, it is projected that the impact on the country’s macroeconomic indicators will be limited. The new administration, led by Claudia Sheinbaum, plans to carry out a gradual fiscal consolidation to prevent a loss of investment grade from risk rating agencies. Citibanamex presented an analysis of the country’s financial situation at the end of the second quarter, warning that uncertainty and increased risks of negative scenarios could lead to a deterioration of financial variables, impacting investment, growth, and public finances.

Although Mexico will experience a modest macroeconomic impact, the room for maneuver to achieve fiscal consolidation is already narrow and is predicted to narrow further. Revenues increased by 2.4 percent in real terms between January and April but were 4 billion pesos below the Ministry of Finance and Public Credit’s budget, mainly due to lower oil revenues and below-anticipated tax collection. Public spending rose by 18.8 percent in real terms in the first quarter, the highest since 1990, comparable only to the fiscal policy measures taken during the 2009 global financial crisis.

The new macroeconomic scenario will have slight impacts on public deficit estimates, as the negative effects of lower growth and higher interest rates are mostly balanced by those of a more depreciated exchange rate. However, pressures on the stability of public finances in 2024 and 2025 are predicted due to these factors.