Public Debt at Record Highs: The Fiscal Challenge Mexico Faces on the Road to 2031
With oil revenues declining and rigid spending rising, the country is carrying debt equal to more than half of GDP—and interest payments that compete with social spending.
Mexican public debt has once again moved to the center of the economic debate as a slower pace of revenue growth and mounting spending pressures take hold. At the end of 2025, the Historical Balance of the Public Sector’s Financial Requirements (SHRFSP)—the broadest measure of debt—reached 53.1% of GDP, equivalent to 18.7 trillion pesos, its highest level since comparable records began in 2000, according to figures from the Ministry of Finance and Public Credit (SHCP).
The increase reflects a multi-year trend: since 2009, public finances have operated with persistent budget imbalances—meaning spending has consistently outpaced the government’s ability to collect revenue. In the assessment of the Center for Economic and Budgetary Research (CIEP), this pattern is explained by a combination of declining oil revenues, higher pension requirements, support and transfers to Pemex, and a debt service cost that has become more expensive over the past decade.
In everyday terms, the figure translates into an indicator meant to help gauge the potential burden: per-capita debt. Based on available estimates, if the debt had to be paid off collectively, each resident would be responsible for roughly 151,000 pesos in 2026, on a path that could continue rising toward the end of the decade. CIEP warns that even if other indicators appear relatively stable, debt per person would tend to increase through 2031, in a context where the population is moving toward an older age structure.
The pressure is not the same for all households. Using income distribution references such as ENIGH, the hypothetical per-person payment would represent several years of income for lower-income groups, while for the highest-income deciles it would be a much smaller fraction. While not a real “bill” for families, the data illustrate the scale of the commitment the public sector is managing and the importance of maintaining a credible path to fiscal sustainability.
Interest, the Exchange Rate, and the Bet on Peso-Denominated Debt
One of the most sensitive pressure points is the financial cost. In 2025, interest payments came in around 3.7% of GDP, a level that contrasts with earlier periods of lower rates and that—according to CIEP analysis—has exceeded federal spending on public education since 2015. At the same time, the Finance Ministry has reported that the financial cost of debt has also surpassed spending on physical investment, fueling a recurring dilemma: directing resources to pay interest reduces room for infrastructure projects, maintenance, and public capital—areas that typically raise potential growth.
This is where exchange-rate risk management matters. In recent years, the government has sought to increase the share of domestic debt to limit vulnerability to sharp exchange-rate swings against the U.S. dollar. The domestic share rose from roughly two-thirds in 2018 to about three-quarters in the most recent year-end readings—an approach that serves as a “shield” during bouts of global volatility, but does not eliminate the risk associated with high interest rates.
Looking ahead, some relief—if it materializes—could come from a lower-rate cycle as inflation continues to ease and expectations become more firmly anchored, though the room will depend on decisions by the Bank of Mexico (Banxico) and the external environment. The peso’s path against the U.S. dollar also matters: a relatively strong currency helps temper the cost of external debt and certain indexed components, but that advantage can reverse quickly if global financial conditions tighten or risk premiums rise.
The 2026 Economic Package, in line with specialists’ warnings, puts the challenge of containing indebtedness on the table. In scenarios where fiscal control falls short, the SHRFSP could keep climbing and move closer to higher levels by 2031. The math is clear: with rigid spending (pensions, health care, transfers, and debt service) and structurally lower oil revenues, sustainability increasingly rests on strengthening non-oil tax collection, improving spending efficiency, and sustaining economic growth that expands the tax base.
The backdrop is a demographic transition that will gradually reduce the share of working-age people while increasing demand for pensions, long-term care, and health services. In Mexico, this dynamic tends to be discussed less than short-term factors, but it is central: without adjustments, budget pressure is likely to intensify just as revenue-raising capacity faces limits if informality remains high and growth does not accelerate in a sustained way.
Beyond the total amount, the quality of the adjustment matters. An across-the-board cut to public investment can improve the short-term balance but undermine productivity and future growth; on the other hand, maintaining large deficits without clear fiscal anchors can raise borrowing costs and increase interest expenses. Between these extremes, analysts often stress the need for credible fiscal rules, transparency around liabilities, and a gradual redesign of spending that addresses aging without crowding out investment or essential services.
In short, the rise in debt to recent highs reflects structural tensions: less oil income, more rigid spending, and more expensive debt service. The path to 2031 will depend on combining budget discipline, a strong fiscal framework, and stable macroeconomic conditions that make it possible to reduce the weight of interest costs without compromising investment and growth.
