Strong Revenue Collection and Spending Adjustments Strengthen Mexico’s Public Finances
Mexico’s public finances have demonstrated resilience in a volatile international environment, supported mainly by improvements in tax revenue collection and reductions in public spending driven by the Ministry of Finance and Public Credit (SHCP). These strategies have helped the country navigate adverse effects stemming from global uncertainties, such as geopolitical conflicts and fluctuations in U.S. economic policy, as well as the direct impact on variables like oil prices and the exchange rate.
The national budget design relies on estimates for factors such as the exchange rate, international oil prices, economic growth, and inflation. When any of these indicators deviate from forecasts, there is a risk that public revenues may decrease, potentially resulting in a higher fiscal deficit. This imbalance must be addressed through financing or additional adjustments to public accounts.
During the first months of the year, the Mexican economy faced a challenging scenario: the dollar remained below 19 pesos, international oil prices fell, and domestic oil production continued to show weakness. As a result, revenues from the energy sector declined significantly. According to official figures, oil revenues were over 175 billion pesos below projections between January and May.
However, strong tax revenue collection helped offset this deficit thanks to its remarkable growth. From January to May, tax revenues rose by 8.9% in real terms, surpassing the target by 82.86 billion pesos. This performance was driven primarily by VAT and income tax collection, in addition to outstanding growth in revenues from imports, which increased by 38.4% due to stronger customs supervision and the taxation of digital platforms. The only significant decrease was seen in excise taxes (IEPS), influenced by both exchange rate movements and lower oil prices.
In response to the drop in oil revenues, the Ministry of Finance implemented public spending adjustments. The cut was substantial: programmable expenditures decreased by 9.6% in real annual terms, coming in 205.07 billion pesos below what Congress had approved. Thanks to these measures, the accumulated fiscal deficit during the period was 47.1% lower than the previous year, providing greater stability to national finances.
The federal government maintains a goal to bring the fiscal deficit down to 3.9% of GDP. Experts note that reducing the deficit is essential for Mexico to maintain its sovereign credit rating and uphold international market confidence, especially in a climate of economic slowdown and low growth. The immediate challenge will be to achieve fiscal consolidation in a sustainable manner, taking into account that economic activity is showing signs of cooling down, which could make it harder to sustain the current pace in tax revenue collection over the coming months.
Amid ongoing global uncertainty and economic deceleration, maintaining fiscal discipline is considered crucial to protect the country’s macroeconomic fundamentals and avoid financial crises that could impact key sectors. The Ministry of Finance’s strategy has proven effective in the short term, but the challenge will be to maintain healthy balances in the face of a possible decline in economic momentum and added pressure on public accounts.
In conclusion, the combination of efficient tax revenue collection and prudent public spending control has been key in anchoring Mexico’s fiscal stability in 2024. While risks persist due to the international context and domestic slowdown, prudent management of public finances will be essential to maintain confidence and economic resilience through the end of the year and the start of the next administration.
