- Mexico’s Ministry of Finance delivered the 2025 budget to Congress on 15 November for its approval. The deficit for 2025 is projected to decrease due to a combination of increased revenues and reduced expenditure. The government estimates the budget balance will be -3.2% of GDP next year, while the primary balance is forecast at 0.6% of GDP. The broader deficit, known as RFSP, is anticipated to be -3.9%. Additionally, broad debt (SHRFSP) is likely to remain stable at 51.8% of GDP. Overall, fiscal consolidation of c.2.0% of GDP is expected.
- According to estimates, Pemex will generate a robust financial surplus of MXN249bn in 2025. The federal government will transfer MXN136bn to the oil company so it meets its debt maturities next year. The government support is contingent upon Pemex improving its financial balance and, ideally, reducing its total debt compared to 2024.
- The government has an opportunity to reduce the deficit by c.2.0% of GDP, as revenues will benefit from the proposed reform to the Federal Rights Law (LFD), higher tariffs on goods from countries without free trade agreements with Mexico, and stricter enforcement. Furthermore, oil prices and exchange rate assumptions are conservative.
- In a significant downside risk scenario, the government will probably cut expenditure and draw on stabilisation funds to achieve its deficit target, in our opinion.
- The ongoing constitutional overhaul, coupled with the potential implications for trade from the incoming Trump administration in the US, has prompted a re-evaluation of the country’s risk premium. Consequently, Moody’s has recently revised the country’s outlook to negative. The landscape in 2025 is expected to remain challenging.
- In our view, Banco de México has ample room to continue easing and should cut the policy rate by 25bp in December. We consider that the scope for accelerating the pace in 2H25 is still wide open. Since the TIIE curve is pricing in a terminal rate of around 9.0%, we still see value in local rates, particularly in the front end. Furthermore, the curve is likely to continue to steepen.
- Lastly, we are maintaining our cautious stance on the MXN. We expect USDMXN to reach c.21.0 in the short term, with high volatility, before stabilising at around 19.50.