Background on the Current Fiscal Situation
The Mexican government has presented a 2026 fiscal package to Congress, which is largely in line with recent years. The proposed budget includes a fiscal deficit of 4.1% of the Gross Domestic Product (GDP), the highest in the last 35 years, except for this year. Additionally, the proposed new debt amounts to a staggering 1.4 trillion pesos (BP), which is 92% higher than in 2018, contradicting the “4T” administration’s promise of no new borrowing.
Projected Public Spending and Revenue Growth
Official projections indicate that public spending has grown by 2.4 percentage points of GDP from 2018 to 2025, while fiscal revenues have increased by 0.7 percentage points of GDP. Despite this, the government plans to add another 0.6 percentage points of GDP to public spending in 2026 and expects an additional 1.3 percentage points of GDP in revenues.
Fiscal Risks and Uncertainties
The trajectory of public finances does not reflect moderation or consolidation, as per fiscal jargon. Instead, the exchequer is exposed to more risks, deviating from a responsible path. The Income Law Initiative (LIF) forecasts public revenue in 2026 to be 22.5% of GDP, a 6.3% increase from 2025. However, this might be an overestimation due to:
- An optimistic GDP growth projection of 2.3%, which could be lower than initially anticipated (the 2025 projection ranged from 2% to 3%, and now stands at 0.5% to 1.5%); and
- Reliance on various measures, such as healthy taxes, administrative ones, and new import tariffs, to generate around 0.6% of GDP in additional revenues.
Since the income law is an estimate, public resources approved are uncertain. Conversely, spending is legislated through the budget decree and is challenging to reduce if needed to maintain fiscal balance, thus increasing the risk of a larger deficit than planned. This often occurs, as seen this year when the projected deficit of 3.9% of GDP rose to 4.3%.
Public Spending Allocation and Its Implications
The proposed public spending growth for 2026 is substantial, at 5.9% more than in 2025 and 26.1% of GDP, exacerbating fiscal risks. Moreover, the allocation does not prioritize long-term growth and productivity, which should be a responsible authority’s focus. The majority of the budget is allocated to cash transfer programs, surpassing allocations for Health, Education, and Public Safety.
Comparison of Key Sectors’ Allocations
The proposed budget’s social protection function houses most cash transfer programs to the population without conditions and exceeds allocations for Education, Health, and Public Safety (2.4 BP vs 2.1 BP). However, when including three SEP scholarship programs (R. Cetina, E. Acuña, and Jóvenes Escribiendo el Futuro) that function similarly to Bienestar transfers, the social programs transfer function amounts to 2.5 BP and is projected to grow by 5.8% in 2026 compared to 2025. Meanwhile, the combined Education, Health, and Public Safety allocation grows by 3.9%.
Investment Allocations and Their Implications
The proposal suggests a significantly larger physical investment than in 2025, at 10% real growth. However, this would still leave public investment 14% below its levels in 2024 or 2022. Over 60% of priority investments (excluding Pemex and CFE) are allocated to passenger trains (Toluca and Mayan lines), with nearly 60% going to roads that are in poor condition. Wouldn’t it be wiser first to repair existing mobility and then evaluate expansion options?
Key Questions and Answers
- What is the main concern regarding Mexico’s 2026 budget proposal? The primary concern is the substantial increase in public spending (5.9% more than 2025) and the questionable allocation, prioritizing cash transfer programs over crucial sectors like Education, Health, and Public Safety.
- How does the proposed 2026 budget compare to previous years in terms of fiscal deficit and public spending growth? The proposed 2026 budget features a fiscal deficit of 4.1% of GDP, the highest in 35 years (except for this year). Public spending is projected to grow by 2.4 percentage points of GDP from 2018 to 2025, while fiscal revenues are expected to increase by 0.7 percentage points of GDP.
- What are the risks associated with Mexico’s 2026 budget proposal? The main risks include an overestimated GDP growth, uncertain public revenue due to the nature of the income law estimate, and a potential larger-than-planned fiscal deficit due to the difficulty in reducing spending if needed.
- How are key sectors like Education, Health, and Public Safety faring in the proposed 2026 budget? Although these sectors receive allocations, they are surpassed by cash transfer programs. When including scholarship programs, social programs grow by 5.8%, while Education, Health, and Public Safety combined grow by only 3.9%.
- What is the proposed allocation for physical investments in 2026, and what are the implications? The proposal suggests a 10% real growth in physical investments for 2026, but this would still leave public investment 14% below its levels in 2024 or 2022. Over 60% of priority investments are allocated to passenger trains, with roads receiving a smaller portion despite their poor condition.
