OECD Urges Mexico to Lay Out a Clearer Fiscal Plan to Cut the Deficit and Shore Up Confidence
The OECD argues that a credible, transparent fiscal consolidation can lower financing costs and create room for productive public investment.
The Organisation for Economic Co-operation and Development (OECD) recommended that Mexico improve spending efficiency and strengthen public revenues through a transparent fiscal plan that spells out concrete measures to reduce the deficit in the coming years. The organization’s core argument is that a clear consolidation path would help sustain investor confidence, temper risk premia, and, as a result, lower public-sector borrowing costs.
At the presentation of its Economic Survey of Mexico, OECD Secretary-General Mathias Cormann stressed that after a fiscal deterioration tied to an “exceptional” increase in the deficit in 2024, the projected reduction path—aiming to move toward 3% of GDP by 2027—is a positive sign, but it needs greater precision to gain credibility. The OECD also noted that Mexico has posted, on average, smaller deficits than other member countries over the past decade, though it faces rising pressure from interest payments and social spending commitments.
The assessment starts from a structural feature: Mexico operates with a relatively small state compared with advanced economies. Public spending is around 30% of GDP, below the OECD average, which limits room to expand programs while also funding public goods that affect productivity, such as infrastructure, health, education, security, and justice systems. In this context, the organization emphasizes that it’s not just about spending more, but spending better: prioritizing projects with higher social returns, strengthening medium-term planning, and systematically using cost-benefit evaluations.
From a public-finance perspective, the discussion is taking place in an environment where interest rates are still high relative to pre-pandemic levels, keeping debt-service costs under pressure. Added to that is the challenge of financing persistent needs: physical investment, logistics modernization tied to regional trade, and rising social demands. In the short term, the fiscal balance becomes more sensitive to external shocks—such as energy volatility or a global slowdown—and to domestic tax collection.
From the federal government’s side, the Ministry of Finance noted that in 2025 it carried out one of the largest consolidation efforts in nearly a decade and strengthened fiscal “buffers,” including contributions to the Budget Revenue Stabilization Fund (FEIP). It also reported transferring resources to the National Infrastructure Fund (Fonadin) for highway projects affecting logistics and competitiveness—an important priority for a country seeking to capitalize on the relocation of supply chains (nearshoring) and improve internal transport times and costs.
The OECD, however, insisted that sustaining consolidation cannot rely solely on cutting spending: higher recurring revenues are needed. Mexico remains among the lowest-tax-collecting countries in the group, which limits the state’s ability to expand public investment without increasing debt. The organization recommended stepping up efforts to combat tax evasion, reviewing preferential tax treatments, and strengthening incentives for state governments to collect taxes within their remit, such as the vehicle ownership tax (tenencia), whose application has been uneven across states.
Revenues, Rigid Spending, and the Public Investment Dilemma
The most sensitive point in the fiscal debate is the clash between structurally low tax revenue and increasingly rigid spending. In Mexico, interest payments and various social spending and pension obligations put pressure on the budget and leave less room for categories that raise potential growth. Even though public investment can have multiplier effects—for example, in highways, ports, water, energy, and urban mobility—maintaining it depends on having stable revenues and clear allocation rules. The OECD argues that a stronger medium-term fiscal framework, paired with spending rules and program evaluation, can help redirect resources toward higher-impact projects, reducing the likelihood of abrupt cuts when the economic cycle weakens.
Another key variable is the development of the domestic financial market. The Ministry of Finance underscored the role of Afores (retirement fund administrators) and institutional savings in expanding long-term financing. As the domestic investor base grows, the government and private sector could rely less on external funding and cushion episodes of global volatility. However, analysts often warn that the depth of the local market does not replace the need for credible fiscal anchors: demand for peso-denominated instruments tends to reward discipline and punish uncertainty with higher rates.
Looking ahead, the OECD’s recommendation intersects with Mexico’s growth challenges. Mexico has shown resilience thanks to its trade integration with the United States, its manufacturing platform, and the strength of certain exports, but it faces bottlenecks in energy, logistics, the rule of law, and human capital. Fiscal consolidation, if executed with planning and without across-the-board cuts, could coexist with an agenda of public investment and regulation that boosts productivity. The risk, economists say, is that an adjustment focused only on spending restraint—without strengthening revenues and without improving spending quality—ends up weakening the state’s capacity to address priorities and, paradoxically, undermines perceptions of sustainability.
In sum, the OECD proposes that Mexico translate its deficit-reduction goal into a detailed, verifiable plan: greater spending efficiency, better investment prioritization, and a revenue strategy that increases tax collection without slowing economic activity. The message is that fiscal sustainability is measured not only by the size of the deficit, but also by the quality of budget decisions and the clarity with which they are communicated to markets and the public.
