Treasury Cuts the Deficit Through Spending Underruns and Lower Debt-Service Costs, but Tightens Transfers to States
Mexico’s fiscal balance improved over the first eleven months of the year, supported by spending that came in below plan and debt-service costs below expectations. According to figures from the Ministry of Finance and Public Credit (SHCP), Public Sector Borrowing Requirements (RFSP)—the broadest measure of the deficit, as it includes financing needs both inside and outside the budget—fell 19.9% in real terms from January through November compared with the same period a year earlier.
The Treasury reported that for that period it had scheduled net spending of 8.426 trillion pesos, but actual spending totaled 8.208 trillion. The gap implies an underspend of 218.6 billion pesos, in a context where total spending grew only 2.5% year over year in real terms. From a fiscal standpoint, this operational “savings” helped make the budget deficit 91 billion pesos smaller than planned and pushed the primary surplus (before interest payments) 37 billion pesos above what had been budgeted.
However, the composition of the adjustment suggests a meaningful impact on the flow of resources to states and municipalities. The largest underspend was concentrated in programmable spending, particularly in the general budget lines—funding pools that channel transfers for payrolls, education, public security, health, and social infrastructure—where the gap between projected and observed spending reached 113.4 billion pesos. In practice, these shortfalls often translate into local cash-flow strains, project rescheduling, and in some cases greater reliance on advances, short-term borrowing, or administrative cutbacks to close out the year.
In addition, spending came in 34.7 billion pesos below what was approved for the Federal Electricity Commission (CFE), and interest payments were 54.8 billion pesos lower than expected. Although the Treasury explained that cumulative financial costs still increased 11.2% in real terms year over year, the final outcome was better than estimated thanks to “active liability management.” In a high-rate environment—though with expectations of gradual normalization as the central bank’s rate-cut cycle advances—containing debt-service costs is key to freeing up budget room.
The SHCP also highlighted that the Historical Balance of the RFSP (the broadest measure of federal public debt) stood at 51.7% of GDP, slightly below the 52% recorded at the end of 2024. The debt profile, the agency said, remains structured mostly in local currency, at fixed rates, and with long maturities, which reduces exposure to exchange-rate shocks and near-term refinancing risks. Even so, the debt trajectory depends on the mix of economic growth, spending discipline, and the level of real interest rates—an especially sensitive point in low-growth years.
The fiscal adjustment comes as the government looks to reduce the deficit after the uptick observed at the end of 2024. In its public messaging, the Treasury has reiterated its goal of bringing the RFSP to 4.3% of GDP this year and to 4.1% by 2026, down from 5.8% of GDP reported at the end of 2024. Budget analysis organizations have warned that a large deficit increases pressure on non-programmable spending (interest) and can shrink the room for public investment, social support programs, and transfers to local governments.
In terms of scale, the reported 218.6 billion pesos in underspending is comparable to the cost of entire social programs or major investment allocations. That comparison underscores that the adjustment is not small: cutting or postponing spending can improve the fiscal result in the short run, but it can also delay projects, limit service delivery, or increase administrative backlogs if it is not executed with clear efficiency and prioritization criteria.
Looking ahead, the fiscal debate will intersect with three factors: 1) the pace of growth in the Mexican economy, which still shows sector-by-sector unevenness and depends heavily on external demand and investment; 2) the path of inflation and interest rates, which determines debt-service costs; and 3) the government’s ability to sustain public investment and transfers without undermining fiscal consolidation. In a slowdown scenario, the challenge will be to avoid concentrating cuts in areas with high local impact—such as health, education, and municipal infrastructure—while also maintaining credibility in the debt anchor.
In short, the smaller deficit reported by the Treasury is explained by spending below plan and debt-service costs below expectations, helping contain debt as a share of GDP. Nonetheless, the adjustment falls heavily on transfer lines to states and municipalities, which could translate into operational strains and delays in services and investment. The sustainability of fiscal consolidation will depend on keeping the cuts orderly, on the economy maintaining momentum, and on debt-service costs stopping their climb as financial conditions ease.
