Sheinbaum Faces Uphill Battle To Slash 5.9% GDP Deficit In Mexico

(MENAFN- The Rio Times) Mexico's public deficit has reached unprecedented levels, according to recent data from the Ministry of Finance and Public Credit.

The deficit, measured through Public Sector Borrowing Requirements (RFSP), hit 1.10 trillion pesos ($56 billion) between January and August 2024.

This figure represents a 53% increase compared to the same period last year. The current level of indebtedness is the highest recorded since the Ministry began tracking this indicator in 2008.

The organization México Evalúa pointed out that former President Andrés Manuel López Obrador's promise not to increase the country's debt remained unfulfilled.

The deficit has surpassed levels seen during previous economic crises, including the 2008 financial crisis and the COVID-19 pandemic. For 2024, the RFSP is expected to close at 5.9% of the Gross Domestic Product (GDP), a historic high.



The Ministry of Finance attributes this increased borrowing to the completion of priority infrastructure projects like the Maya Train and the Dos Bocas Refinery.

The primary budget balance accumulated a deficit of 175,128 million pesos ($9 billion), lower than the programmed level of 212,912 million pesos ($11 billion).

As a result, the historical balance of RFSP-the broadest measure of debt-increased to 16.5 trillion pesos ($845 billion) in August 2024.

This total debt comprises 12.33 trillion pesos ($631 billion) in domestic currency and 4.2 trillion pesos ($215 billion) in foreign currency.
Fiscal Challenges Ahead for Sheinbaum's Administration
The Congress-approved debt ceiling for 2024 is 1.9 trillion pesos ($97 billion) for internal borrowing and 18 billion dollars for external borrowing.

The incoming administration of Claudia Sheinbau faces the immediate challenge of reducing the RFSP to a more stable level of 3-3.5% of GDP through fiscal consolidation.

This goal requires increasing budget revenues, reducing public spending, or a combination of both. The Center for Economic and Budgetary Research (CIEP) highlights the need for a comprehensive tax reform to improve collection effectiveness.

They also emphasize the importance of promoting fiscal equity. Alternative measures may include increasing specific taxes or reducing informality, but these alone may not suffice.

Sheinbaum appears to be following López Obrador's strategy of avoiding tax reform despite significant public spending pressures. Instead, she plans to improve efficiency through technology and enhance processes at various customs offices.

However, CIEP warns that even with public spending cuts, reducing the deficit to 3% of GDP by next year will be challenging. Completing flagship projects and reducing average interest rates could decrease the public deficit by 1.1% of GDP.

Combining this with increased revenue from combating informality and lower financial costs may not be sufficient. It might not be enough to reach the 3% target.

CIEP emphasizes the need for comprehensive fiscal reform, considering fair burdens and benefits across all social sectors and generations.

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