Economic Context and Fiscal Pressures
In a climate of moderate economic activity and increasing fiscal pressures, the public finances report at the end of May presents a pertinent contrast. With more income and less expenditure, a deficit has been transformed into a surplus in the first five months of the year compared to the same period in 2024.
Economic Activity and External Factors
The economic activity continues at a contained pace. Figures for consumption, investment, business confidence, and others are not particularly encouraging. These are compounded by external factors that further complicate the outlook, particularly as the US economy loses momentum and trade tensions, though less intense in media coverage, maintain an atmosphere of uncertainty. Additionally, the oil price surge was short-lived, and Mexico’s export blend is now below $65 per barrel.
Public Finances: A Positive Surprise
Against this backdrop, public finances pleasantly surprised with positive news: real public budgetary income increased by 3.7% in the first five months of the year compared to the same period in 2024. This isn’t a dramatic leap, but it does signal relative strength. Especially considering that oil revenues, which previously provided fiscal policy margin, fell by 23.8% in the same period.
Tax Revenue Performance
The standout point in the report is the robust performance of tax revenues, which grew by 8.9% in real terms, driven by VAT (+12.5%) and IRT (+8.2%). Even the tax on gasoline and diesel saw a slight increase of 0.5%. These figures suggest an active, albeit contained, formal economy and a SAT that has maintained revenue collection momentum. It remains to be seen if this revenue efficiency can continue its upward trajectory.
Expenditure Adjustments
On the expenditure side, adjustments are quite evident. Real net paid expenditure decreased by 5.3% in the January-May period, but this figure masks a more pronounced drop in programmable expenditure—the kind used to provide goods and services to citizens: -9.6%. Notably, physical investment contracted by 29.1%, and financial investment fell more than 50%. Despite this, expenditure on personal services increased by 3.2%, and structural current spending fell by 6.8%, suggesting an effort to curb administrative spending without affecting government employee salaries.
Reversing the Primary Balance
This adjustment enabled a reversal of the primary balance, that is, before interest payments on debt are factored in. While a deficit of 170,000 million pesos was accumulating in the first five months of 2024, a surplus exceeding 209,000 million pesos was registered in the same period of 2025. This is a significant shift that reinforces the narrative of fiscal discipline.
Concerns Over Spending Patterns
However, the reduction hasn’t been uniform or neutral. Investment expenditure shows a drop of over 29%. Meanwhile, the public sector’s financial cost increased by 13.1%, with a leap of over 42% just in May. In other words, the government is spending less, but an increasing portion of that spending goes towards interest payments, commissions, and debt amortization. The rise in government federal debt service (+18.3%) and para-public sector (+22.9%) reflects the high-interest-rate environment in which many financial obligations were acquired, imposing a growing burden on public finances.
A Mixed Bag
If this trend continues, the primary surplus will be welcome news, though not without its challenges. Yes, it provides fiscal relief and signals a positive note to markets. However, it also reveals an increasingly rigid spending structure where fiscal maneuvering space shrinks as ineluctable commitments grow. Investment falls, productive programs slow down, and the cost of debt continues to rise.
Key Questions and Answers
- What does the public finances report reveal? The report shows a surplus in the first five months of 2025, a shift from the deficit in the same period of 2024. This is due to increased tax revenues and decreased expenditures.
- How has the economic activity been? Economic activity has been moderate, with uninspiring figures for consumption, investment, and business confidence. External factors like the US economy’s slowdown and trade tension add to the uncertainty.
- What’s the situation with public finances? While there’s a surplus, it’s not without concerns. The reduction in investment and the rising financial cost of debt are key issues.
