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Mexico’s fiscal policy and the SHCP

The World Trade Organization (WTO) described fiscal policy in Mexico, which is the responsibility of the Ministry of Finance and Public Credit (SHCP).

The Federal Budget and Fiscal Responsibility Law (Ley Federal de Presupuesto y Responsabilidad Hacendaria, LFPRH), and its amendments, most recently on February 27, 2022, constitute the most important legislation on fiscal policy.

This Law requires the Federal Executive to submit annually a Revenue Law initiative and a proposed Expenditure Budget for approval by Congress, through the Ministry of Finance and Public Credit (SHCP).

The LFPRH contains provisions related to fiscal discipline and establishes balanced budgets as the main objective for the public sector.

In exceptional circumstances, the SHCP may propose a deficit budget, submitting to Congress the specific amount of financing necessary to cover the budget deficit with the corresponding justifications and indicating the actions and number of fiscal years necessary to reestablish fiscal balance.

In general, it is expected that the projected revenue and expenditure amounts contained in the project and in the Expenditure Budget will contribute to reach the annual target of the public sector’s financial requirements (RFSP).

In the event that, at the end of the fiscal year, a deviation from the PSBR target of more than the equivalent of 2% of the total approved net expenditure is observed, the Ministry of Finance must present a justification for such deviation in the last quarterly report of the fiscal year.

Fiscal policy

Investment spending by Petróleos Mexicanos (Pemex) and its productive subsidiaries is not counted for the purposes of balancing the budget.

The LFPRH provides that the estimated value of oil revenues must be included in each Revenue Law and Expenditure Budget.

In the event of a decrease in oil revenues due to a drop in oil prices during the fiscal year, resources from the stabilization funds may be used until they are exhausted, after which spending cuts must be made.

Adjustment mechanisms are also contained in the LFPRH.

 

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