Public debt at record highs: Mexico ends 2025 at 53.1% of GDP as interest costs climb
With oil revenue declining and more inflexible spending, borrowing—and its financial cost—becomes the main challenge for public finances.
Mexico’s public-sector borrowing ended 2025 at its highest level in decades: the Historical Balance of the Public Sector’s Financial Requirements (SHRFSP) stood at 53.1% of GDP—equivalent to 18.7 trillion pesos—according to figures from the Ministry of Finance and Public Credit (SHCP). The number not only exceeds the level seen before the pandemic; it also cements a more-than-decade-long trend in which spending has persistently outpaced the state’s structural capacity to generate revenue.
The math behind the increase is familiar, but it looks tighter today: slower momentum in tax revenues relative to spending needs, declines in oil rents, and growing pressure from inflexible items—pensions, transfers to Pemex, and the debt’s own carrying cost. Together, these factors have kept the budget out of balance since 2009, in a context where Mexico’s economy has grown at a moderate pace, with bouts of slowdown that limit the natural expansion of tax collection.
From a sustainability standpoint, the focus isn’t just the debt level, but its path and the cost of financing it. In markets, the read typically hinges on three variables: growth, interest rates, and fiscal credibility. If any of those pillars weakens—because of lower investment, external shocks, or doubts about fiscal consolidation, for example—debt service absorbs more resources and reduces room for social spending and public investment.
The Center for Economic and Budgetary Research (CIEP) warns that if borrowing is not contained in line with the consolidation assumptions in the 2026 Economic Package, the SHRFSP could climb to 58.9% of GDP by 2031. While that level would not automatically imply a crisis, it would increase the sensitivity of public finances to adverse scenarios: currency depreciation, weaker growth, or prolonged periods of high real interest rates.
On a per-person basis, the figure also underscores the magnitude: the CIEP estimates that per-capita debt would be around 151,000 pesos. This indicator—by replacing GDP with population size—tends to be more stable and helps frame the burden in social terms: paying off that hypothetical amount is wildly out of reach for lower-income households. Based on ENIGH data, the estimate amounts to several years of income for the bottom deciles, while for higher-income households it represents a relatively small share of their monthly capacity.
In parallel, the Finance Ministry has emphasized a funding strategy with a greater share of domestic debt, aiming to reduce exposure to exchange-rate swings. In recent years, the proportion of debt denominated in pesos has steadily increased, a choice that acts as a buffer during bouts of external volatility. However, that “shield” doesn’t eliminate the cost problem: if domestic rates remain high, interest spending rises even with less currency risk.
The financial cost: when interest competes with public priorities
One of the most significant shifts in the fiscal debate is that the financial cost of debt has become a dominant part of the budget. In 2025, payments of interest and fees accounted for about 3.7% of GDP—more than double what was seen in 2008—according to estimates cited by the CIEP. In practical terms, this means a growing share of public revenue is devoted to servicing previously incurred debt rather than funding investment in infrastructure, health care, or education. In addition, the gap between financing costs and capital investment has widened, feeding a difficult cycle: lower public investment can limit potential growth, and weaker growth makes it harder to stabilize the debt-to-GDP ratio.
The future behavior of debt costs will depend largely on the interest-rate cycle. An environment of gradual rate cuts—consistent with inflation converging and a less restrictive monetary stance—could ease debt service. Still, the improvement is not immediate: the liability portfolio rolls over over time, and a significant portion is issued at maturities that reflect past rates. On top of that, any episode of global risk aversion can make funding more expensive, especially for emerging-market economies.
The backdrop is demographic and structural. The population transition will reduce the share of people of working age and increase demand for pensions, health care, and long-term care, pushing up inertial spending. At the same time, the tax base is unlikely to grow at the required pace without sustained gains in productivity, labor formality, and economic growth. In that sense, the challenge isn’t limited to “cutting” or “spending less,” but to designing a credible path: strengthening permanent sources of revenue, prioritizing investment with economic returns, and managing contingent liabilities such as those tied to state productive enterprises.
In the short term, Mexico also faces the challenge of maintaining the confidence of local and foreign investors in an uncertain international environment. The country’s relative advantage—manufacturing integration with North America, a boom in exports, and reshoring potential—can support revenue and activity; but turning that opportunity into long-term growth requires infrastructure, legal certainty, and more efficient public spending. Without these elements, debt tends to rise without GDP growing enough to offset it.
In sum, the level of public debt at the end of 2025—and, above all, the weight of interest payments—reflects a fiscal strain that is no longer cyclical. The path to 2031 will depend on the government’s ability to stabilize the budget balance, contain inertial pressures, and sustain growth, without sacrificing investment or undermining the quality of spending.
