Public Debt Nearing Record Highs: Mexico Eyes 55% of GDP in 2027 as Ratings Agencies Step Up Scrutiny

Rising debt and a persistent deficit are forcing the Finance Ministry to prove it has a credible fiscal consolidation plan to avoid pressure on Mexico’s rating.

Mexico’s public-debt trajectory is back at the center of the economic debate. According to the latest projections from the Ministry of Finance and Public Credit (SHCP), the Historical Balance of the Public Sector’s Financial Requirements (SHRFSP)—the broadest measure of public-sector debt—would reach 55% of GDP in 2027, a level not seen since the early 2000s and that, in nominal terms, would be around 21.8 trillion pesos.

The figure reflects not only greater reliance on public financing, but also a shift in the backdrop: after a temporary decline in the debt-to-GDP ratio between 2021 and 2023, estimates now point to four consecutive years of increases, amid moderate growth, higher debt-service costs, and pressures to sustain social programs and public investment.

In practice, a higher debt ratio does not automatically imply a credit deterioration; what matters is whether the government can stabilize it over the medium term and whether the fiscal balance converges to levels consistent with an economy that grows without major disruptions. Still, the projected increase makes the country more sensitive to bouts of volatility: an external shock that raises financing costs, a domestic slowdown, or a fiscal slippage could more quickly affect perceptions of sovereign risk.

A technical factor also shapes how the number is interpreted: the Finance Ministry attributes part of the move to a methodological revision to nominal GDP carried out in 2025, which changed the base used to calculate the debt-to-GDP ratio. While that adjustment can change levels, it does not eliminate the underlying challenge: the fiscal deficit persists and debt-service costs remain a significant component of spending.

Official projections are built on a framework described as prudent and assume no changes to the tax system. Even so, the document acknowledges a more complex external environment, marked by geopolitical tensions—including the war in Iran—and their effects on oil prices, currency markets, and global financial conditions.

Within that context, the peso’s performance against the U.S. dollar is a key variable. A stronger peso can temporarily reduce the peso value of part of the external debt and help contain inflation pressures, but it can also affect export-linked revenues and, in certain episodes, make the fiscal balance more vulnerable to abrupt exchange-rate corrections. At the same time, still-high interest rates increase the cost of rolling over obligations and compete with other spending priorities.

Deficits, spending cuts, and the test of budget credibility

The biggest driver of debt dynamics is the persistence of the deficit: when spending exceeds revenues, the government must finance the gap with borrowing. The Finance Ministry lays out a gradual deficit reduction from 4.3% of GDP in 2025 to lower levels in 2026 and 2027, relying mainly on cuts to public spending. The adjustment, however, faces constraints: part of spending is structural/inertial (pensions, transfers, and debt-service costs), another part is tied to legal commitments, and the ability to cut investment or operating outlays often runs up against public-service needs and ongoing projects.

In addition, analysts have warned that the fiscal balance could be hit by lower revenue due to incentives or weaker collections in categories such as the fuel excise tax (IEPS), especially if economic activity slows or international volatility forces the government to cushion domestic prices. In that scenario, meeting deficit targets without tax changes would require particularly disciplined budget execution.

The debate ties into a structural issue: Mexico’s tax take remains low compared with OECD peers and even many Latin American countries, even after gains from enforcement and digitization. Without a clear path to broaden the tax base or strengthen recurring revenues, fiscal consolidation tends to depend on spending cuts—often harder to sustain politically and potentially more costly for long-term growth if they reduce public investment or high-multiplier spending.

From a market perspective, debt and the deficit matter because of their relationship to borrowing costs and risk perception. A deterioration in the sovereign assessment can raise the government’s funding costs and, through spillovers, push up credit costs for businesses and households. In Mexico—where access to credit is already limited relative to the size of the economy—a persistent increase in rates or risk premiums can weigh on investment, durable-goods consumption, and ultimately growth.

Banks’ and ratings agencies’ assessments add nuance. Some private forecasts anticipate that debt could land above the Finance Ministry’s 2027 scenario if growth comes in weaker, oil revenues disappoint, or spending cuts become politically difficult. HR Ratings, for example, has noted that there is still some fiscal space, but that a shift in priorities that raises transfers without a clear revenue source could pressure the rating by reducing room to maneuver in the face of shocks.

One contextual point is that Mexico’s economy rests on pillars that, for now, also act as buffers: a relatively solid financial system, a manageable current account, strong remittance inflows, and a close trade relationship with the United States. At the same time, the country faces challenges related to productivity, informality, and security, which affect long-term growth and therefore the ability to stabilize debt without abrupt adjustments.

Looking ahead, the market will focus on three signals: the quality of the budget adjustment (what gets cut and with what effects), the evolution of debt-service costs (driven by rates and the maturity profile), and the ability to raise revenue sustainably without choking off activity. In a climate of global uncertainty, consistency between targets, execution, and results will be the main asset to reduce noise around the debt.

Overall, the debt outlook through 2027 does not in itself amount to a crisis, but it does raise the bar: fiscal consolidation will have to be credible and sustained so that higher borrowing does not translate into pressure on the rating or a persistent rise in the cost of public and private financing.