Mexico’s public finances: primary surplus

During 2023, Mexico‘s public finances remained healthy, with an expected primary surplus of 0.1% of GDP and total public sector needs (the broadest measure of the deficit) of 3.9% of GDP. 

The budget of the Ministry of Finance and Public Credit (SHCP) for 2024 considers an increase in current spending and social programs, which will result in an increase in the total deficit to 5.4% of GDP and a primary deficit of 1.2% of GDP. 

Despite the above, Mexico’s debt-to-GDP ratio is expected to reach a healthy level of 48.8% of GDP by the end of 2024, and the country maintains an investment grade rating from the major credit rating agencies (S&P, Fitch and Moody’s).

Globally, in 2023, monetary policy remained tight to address still persistent inflationary pressures, while the picture of the fiscal stance has been mixed, with some countries continuing the process of fiscal consolidation, while in others this stance was relaxed. 

According to the International Monetary Fund (IMF), in the United States the fiscal stance has been relaxed, which is not contributing to the reduction of inflation. 

Likewise, it is mentioned for the euro zone that fiscal policy should aim to contribute to the disinflation process by adopting a restrictive stance in general.

Public Finances

With respect to Mexico, it should be noted that in recent years there has been coordination of both policies, which has been essential in strengthening the country’s macroeconomic fundamentals. 

In 2020, according to the Bank of Mexico, in the face of the different shocks faced by the Mexican economy, fiscal and monetary policy acted accordingly to mitigate the impact they would have on the economy. Similar coordination was observed in 2021.

Then, in 2022, monetary policy was restrictive while the primary deficit increased, although it was only 0.2 points of GDP. 

Mexico did not require a major fiscal adjustment in the years following the pandemic compared to other countries, as the public balance deficit widened only moderately in 2020.

Public finances refer to the set of financial activities and decisions that are oriented to the management of the State’s financial resources to fulfill its functions and responsibilities, such as the provision of public goods and services, the maintenance of infrastructure, the implementation of social policies and the administration of public debt, among others.