Rising Interest Costs Force Mexico to Slash Key Sector Budgets

In 2025, Mexico faces a challenging fiscal landscape. The federal government’s proposed budget prioritizes debt service over key sectors like investment, health, and education.

This shift reflects the country’s complex economic realities and past financial decisions. The 2025 Federal Expenditure Budget Project reveals a significant increase in debt service costs.

These are expected to reach 1.38 trillion pesos, a 5.4% year-over-year rise. This figure represents 3.8% of Mexico’s Gross Domestic Product (GDP), an unprecedented level.

Meanwhile, investment, health, and education sectors face budget cuts. The government aims to reduce the public deficit, as noted by the Economic and Budgetary Research Center (CIEP).

Investment spending, both physical and financial, is set to decrease by 14% compared to the previous year. Health sector funding will drop by 11% to 918,447 million pesos or 2.5% of GDP.

Rising Interest Costs Force Mexico to Slash Key Sector Budgets. (Photo Internet reproduction)

This marks the lowest level since 2019, falling short of the World Health Organization‘s recommendation of 6% of GDP. Education spending will see a 1.2% reduction, totaling 1.1 trillion pesos or 3.2% of GDP.

Mexico’s Fiscal Challenges

CIEP researcher José Luis Clavellina explains the situation’s root causes. He points to past financial decisions and accumulated debt as key factors driving the current budget priorities.

The government’s focus on completing infrastructure projects has led to increased borrowing, resulting in higher interest payments.

The Finance Ministry’s original goal was to reduce the Public Sector Borrowing Requirements (RFSP) from 5.9% to 3% of GDP.

However, the 2025 Economic Package now targets 3.9%. This adjustment reflects the challenges of balancing committed expenses with low revenues.

CIEP Director General Alejandra Macías highlights the difficult choices faced by policymakers. They could either implement tax reforms to increase revenue or cut spending.

The current approach involves partial fiscal consolidation through spending reductions. These budget cuts may impact the well-being of Mexican citizens.

Mexico’s Fiscal Sustainability

Macías warns that such measures could exacerbate inequalities and weaken institutions. The situation underscores the delicate balance between fiscal responsibility and social investment.

The per capita debt in Mexico is projected to increase by 10.4% in 2025. Each Mexican citizen will theoretically owe 138,000 pesos of the country’s public debt.

This figure includes both foreign and domestic currency obligations. Clavellina emphasizes the need for a more comprehensive approach to debt analysis.

He calls for greater consideration of fiscal sustainability and intergenerational equity in future economic packages. The Finance Ministry projects that the Historical Balance of Public Sector Financial Requirements will reach 18.59 trillion pesos in 2025.

This represents a 6.2% increase from the previous year’s approved amount. Despite these challenges, the government forecasts stability in the debt-to-GDP ratio for the rest of the decade.

However, CIEP cautions that this projection may not fully account for future pressures on public spending, such as an aging population and existing financial commitments.

As Mexico navigates these fiscal challenges, the balance between debt management and social investment remains a critical issue. The 2025 budget reflects the complex trade-offs facing policymakers in an evolving economic landscape.