IMF Warns Mexico on Public Debt and Fiscal Measures
According to Nigel Chalk, the newly appointed Director of the Western Hemisphere Department at the International Monetary Fund (IMF), Mexico needs to implement a greater fiscal effort to put its public debt on a downward trajectory. This will enable the country to rebuild fiscal space for future shocks.
Current Fiscal Deficit and Public Debt
Chalk mentioned that Mexico is expected to reach a fiscal deficit of 4.3% of GDP by the end of the year, which represents a reversal from the 2024 fiscal expansion and is close to the originally budgeted 3.9%.
Despite an increase in gross public debt to 59% of GDP, Mexico managed to contain spending and improve tax administration, as acknowledged by Chalk.
IMF’s Outlook for Mexico
For the upcoming year 2026, the IMF’s team of economists forecasts a more gradual fiscal consolidation for Mexico, occurring in an environment of higher uncertainty and unfavorable interest rate differentials compared to economic growth in the region.
Chalk emphasized that fiscal consolidation is crucial to reduce public debt, which in turn will restore policy margins and facilitate inflation convergence towards targets. However, he noted that fiscal policy in the region has remained expansionary amidst monetary restraint since 2022.
Key Areas for Growth in Mexico
During his visit to present the IMF’s Regional Prospects Report to economic authorities and IMEF strategists, Chalk highlighted the need for continued efforts in expanding credit access, improving the business climate, and closing infrastructure gaps—especially in energy, transportation, and water.
Regional Economic Outlook
Weak Regional and Mexican Growth Projections
Chalk commented that the growth prospects for Latin America and the Caribbean are weak, influenced by low productivity growth associated with persistent inefficient resource allocation.
According to the IMF’s report presented at the Annual Meetings on October 17, the regional economy is projected to grow by 2.4% this year and 2.3% next year. Mexico is expected to grow by 1% in 2025 and 1.5% in 2026, both below the regional average.
Chalk clarified that Mexico’s projection, especially for this year, is based on a context of appropriately restrictive macroeconomic policies. The 1% PIB growth projection for 2025 is relatively favorable, considering the US slowdown and recent trade policy effects amid high uncertainty. Regarding inflation, the IMF expects to reach the 3% target by the second half of 2026.
Judicial Reform and Business Climate
Discussing constitutional changes in Mexico and their impact on the business climate, Chalk stressed that a functioning judicial system is essential for ensuring the rule of law and fostering investment and economic stability.
He emphasized the importance of ensuring transparency in judicial decisions, strengthening integrity safeguards, and maintaining professionalism and judicial responsibility principles.
Chalk also mentioned that discussions on trade matters will be an independent process, unrelated to the judicial reform. However, he acknowledged that it is a significant institutional change raising questions about the new judicial body’s functioning.
Crime and Violence Undermining Investment in Latin America
Chalk explained that crime and illicit activities significantly limit economic growth in Latin America and the Caribbean by undermining investment and productivity.
He pointed out that crime is highly geographically concentrated and disproportionately affects poorer communities, young people, and those with lower educational attainment.
Chalk also noted that crime imposes substantial costs on businesses and public finances through direct losses and increased security spending, diverting resources from other priorities.
He added that regional violence is often fueled by economic instability, high inequality, and weak institutions.
Chalk concluded that addressing these challenges requires an integrated policy response combining macroeconomic stability, inclusive growth, stronger institutions, and increased international cooperation.
Remittances Affected by Tightened Migration Policies
The IMF report anticipates that remittances will remain robust this year but could slow down by 2026 due to stricter US migration policies.
Transfer flows accelerated in the first half of the year due to temporary preventive measures, but are expected to decrease in the future as US migration policies tighten.
Chalk warned that slower-than-expected growth in major global economies could weaken regional exports and reduce tourism and remittance flows.
He also noted that tightened migration policies might limit remittance flows, and their growth impact depends on their significance to household incomes.
Data from the Bank of Mexico shows that 4.1 million households receiving these funds in the country obtained $5,214 million in September, marking five consecutive months above the $5,000 million mark. However, September’s monthly inflow was lower than the historical high of $5,261 million received in September 2024.
This marked the sixth consecutive month of declining monthly remittance flows compared to the 2024 historical high.
Key Questions and Answers
- What does the IMF recommend for Mexico’s public debt? The IMF advises Mexico to implement greater fiscal effort to put its public debt on a downward trajectory, enabling the country to rebuild fiscal space for future shocks.
- What are the projected growth rates for Latin America and Mexico? The IMF projects a 2.4% growth rate for the regional economy this year and 2.3% for the next year. Mexico is expected to grow by 1% in 2025 and 1.5% in 2026, both below the regional average.
- How does crime impact economic growth in Latin America? Crime and illicit activities significantly limit economic growth in Latin America by undermining investment and productivity, imposing costs on businesses and public finances, and being fueled by economic instability, high inequality, and weak institutions.
- What is the outlook for remittances in Mexico? The IMF anticipates robust remittances this year but expects a slowdown by 2026 due to tightening US migration policies. Slower global growth could also weaken regional exports and reduce tourism and remittance flows.
