In February the fiscal deficit dropped sharply, however it is unlikely the annual target will be met

MEXICO - In Brief 01 Apr 2025 by Mauricio González

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By February 2025, public finances strengthened. Total revenues rose by 4.8% in real annual terms (driven by a 10.1% increase in tax revenues), while spending saw an exceptional decline of 17%. This sharply reduced the fiscal deficit, measured by the broad Public Sector Borrowing Requirements (PSBR), which fell -74.3% in real annual terms, reaching -$127 billion. Additionally, the primary balance returned to positive territory, with a surplus of 103billion a significant improvement from the −$ 77.4 billion deficit recorded a year earlier. This means the government no longer needs to borrow to cover interest payments.                           Graph1MEXICO PUBLIC FINANCE JAN- FEB 2024-2025                         (Billion pesos) Source: Data FxRates® and SHCP, Analysis GEA Grupo de Economistas y AsociadosHowever, these extraordinary revenue and spending figures are unlikely to hold for the rest of the year. In the case of tax revenues, the accumulated increases in income tax (ISR) and VAT (IVA) during the first two months were 7% and 20%, respectively. These gains do not align with the economic slowdown nor stem from new enforcement measures—instead, they appear to result from administrative adjustments.The government set highly ambitious spending adjustment targets, particularly in operational expenses (-16.2% in real terms) and transfers—primarily social programs (-19.8%). It also planned an annual reduction of -3.4% in payroll and -21.7% in investment. As of February, operational expenses and transfers show steeper declines than annual targets (-18.4% and -61.4%, respectively), likely unsustainable. The former is due to an unsustainable 17% drop in materials and suppl...