The Treasury is confident that there will be further rate cuts to create more fiscal space.
The Ministry of Finance and Public Credit (SHCP) is confident that interest rates will continue to fall in the short and medium term, creating greater fiscal space, according to Rodrigo Mariscal Paredes, head of the agency's Economic Planning Unit.
During his participation in the SHCP-UNAM Lecture, the Treasury's chief economist noted that in recent years, high interest rates have put pressure on public finances through increased debt financing costs; however, this has begun to reverse.
"The increase in financial costs is due to the interest rates we've seen both in Mexico and around the world, and as we see interest rates adjust, we expect this to correct itself... Our projection is that rates will continue to fall further in the short and medium term, which will give us more leeway," the official said.
The Public Finance and Public Debt Report for the first quarter of the year showed that the financial cost of the debt was 161.559 billion pesos, which, while 25.633 billion pesos below the planned amount, represented an annual increase of 6.8%.
The financial cost alone would completely absorb the revenue collected from the Special Tax on Production and Services ( IEPS ), which generated 118.134 billion pesos in revenue for the treasury during the same period.
According to the estimate presented in the General Preliminary Criteria for Economic Policy 2026, this year the financial cost of the debt will represent 3.9% of the Gross Domestic Product (GDP), a rate similar to the one the Treasury is seeking to set for the fiscal deficit, which stood at 5.7 percent last year.
Faced with the pressure of the financial cost of debt , as well as other expenditure items such as pensions, the need to promote tax reform to increase government revenue and meet spending needs has been repeatedly highlighted; however, for the time being, the government has refused to implement any.
At the UNAM campus, Mariscal Paredes reiterated that Mexico's public finances are "healthy," especially when compared to economies similar to Mexico's.
"In the primary balances, which is the fundamental measure of how much fiscal stimulus, how much fiscal spending an economy is doing (...) Mexico has maintained fairly stable primary deficits around zero," he said.
He recalled that, during the pandemic, various countries offered incentives to the population, which led to an increase in their debt. Unlike Mexico, which chose not to take on further debt, which is why its current indicators are favorable.
"This has caused Mexico's debt to remain relatively stable compared to other countries, which we expect to remain stable in the medium and long term," he said.
Eleconomista
