New Budget: Ambitious Targets and Sharp Cuts as Reality Hits
The 2025 Federal Budget may have done enough to stem the slide in the Peso, and avoid for now Mexico downgrades from Wall Street and Rating Agencies – but the cost has been sharp cuts in discretionary spending outside pensions and social transfers. And some of the assumptions on which the budget is based – namely GDP growth range of 2.0–3.0% for 2025 contrast with estimates from the World Bank (1.5%) and IMF (1.3%) – suggests further cuts will be necessary or the budget deficit forecast of 3.9% of GDP will be missed.
Outside Mexico, Wall Street has generally welcomed the sharp reduction in the deficit from the projected 5.9% of GDP in 2024 to 3.9% of GDP in 2025, implying a stable public-sector debt/GDP ratio of 51.4%, but questioned whether assumptions are too rosy. The primary balance is forecast at a 0.6% surplus for 2025 up from a 1.4% deficit in 2024.
“The budget is based on rosy macro numbers and hard to implement current expenditure cuts, but goes in the right direction.” said Bank of America. “The 2025 budget submission met expectations, proposing a solid fiscal consolidation that relies on spending cuts which we see as challenging to attain” Morgan Stanley. “Overall, a tough, but not impossible, budget to execute. The adjustment relies very heavily on a significant squeeze of current and capital spending, cut to the bone in non-capital spending. Revenue may also disappoint given that real GDP growth is likely overestimated by at least 1.5%, but the administration may eventually benefit from a more depreciated MXN and higher oil prices.” said Goldman Sachs
Within Mexico, the focus has been relief that the deficit is coming down from unsustainable levels, and outrage in some quarters regarding sharp cuts to spending in certain areas, such as health, environment, culture and public security, and what this reveals about the new government’s priorities. Health seems to be facing a 34.1% cut and public security a 36.2% reduction, for example Meanwhile, a 57.5% increase in infrastructure spending probably reflects costs related to finishing up the previous administration’s infrastructure projects.
The unstated issue remains tax reform (i.e., tax increases). It is increasingly evident that the new government will not be able to meet its social goals, support loss-making Pemex and CFE, and keep government debt/GDP stable. At some point taxes will have to go up – the P64 billion question for the private sector is when, by how much, and on who. And if as seems likely Mexican GDP growth disappoints – due to budget cuts, Trump and USMCA jitters, judicial reform, and global economic slowdown – then tax reform is a question of sooner rather than later.
The Budget Commission of the Chamber of Deputies is expected to fast-track the approval of President Sheinbaum’s first budget. As this is a transition year for the government, the deadline to approve the Revenue Law and the Expenditure Budget extends until December 31. However, deputies plan to finalize it by December 15 at the latest, well ahead of the Christmas break. Even before the 2025 Economic Package was submitted, deputies had agreed to aim for completion between December 13 and 15.
Can Sheinbaum Lead on Climate While Slashing Environmental Budgets?
At the G20 Summit in Rio de Janeiro, President Sheinbaum presented an ambitious proposal to redirect 1% of global military spending toward the largest reforestation initiative in history. Her plan envisions mobilizing US$24 billion annually to reforest 15 million hectares, creating jobs for six million tree planters while addressing climate change and reducing poverty. She boldly stated, “Let’s stop sowing wars; let’s sow peace and life.”
While the proposal is for sure bold, critics argue it is pure political gesturing, as none of the big countries are going to redirect defense spending to reforestation in the current geopolitical environment. They also argue certain contradictions in her administration’s domestic policies. Despite positioning herself as a global advocate for environmental justice, her 2025 budget proposes one of the steepest cuts to Mexico’s Ministry of Environment—a 34.1% reduction, second only to cuts in public security.
President Sheinbaum proudly highlighted to G20 members the recent constitutional reforms passed in Mexico, including those targeting the judicial system, substantive gender equality, and the full recognition of Indigenous and Afro-Mexican peoples and communities as subjects of rights. “In my country, the people of Mexico have chosen to bring inclusion, equality, democracy, and justice to areas we never imagined (…) From our perspective, it is better to promote inclusion and democracy in all aspects of public life. That is true freedom,” she remarked.
The G20 leaders reached an agreement on Monday in Brazil on a final declaration that includes only basic consensus on issues such as climate change, wars, hunger, and taxes on large fortunes. The world’s major economies also incorporated the proposal for a “Global Alliance Against Hunger and Poverty” into the text, an initiative by the host country’s president, Lula da Silva.
Pretrial Detention in Mexico
Some critics worry that Mexico’s Fourth Transformation has taken a negative turn with its push for a constitutional reform that expands the use of automatic pretrial detention. Under this measure, individuals can be imprisoned on a prosecutor’s accusation, without a judicial review to determine if such detention is warranted. This appears to violate the presumption of innocence and Mexico’s international commitments, notably the recent Inter-American Court ruling against such practices.
Congress must harmonize the legal framework of the relevant laws with the provisions of this decree within 180 days from the date this decree comes into effect. Meanwhile, the legislatures of the federal entities must make the necessary regulatory adjustments to comply with the provisions of this decree within 365 calendar days following its publication.
The Expanded Role of Mexico’s “Super Ministry”
The unanimous decision by Mexico’s Senate to expand the powers of the Ministry of Security and Citizen Protection (SSPC), led by Omar García Harfuch, has raised concerns in some quarters, even if the opposition is mostly supportive. While proponents argue that this move strengthens public security institutions under civilian leadership, others worry creating a “super Ministry” risks centralizing too much power without adequate oversight.
This reform, which modifies Article 21 of the Constitution, enables the SSPC to assist prosecutors in criminal investigations, arguably blurring the lines between executive and judicial responsibilities. Such an expansion of investigative powers, coupled with its existing coordination, intelligence, and planning roles, positions the SSPC as an entity with broad reach.
Unlike other initiatives promoted by the 4T, this one gained the support of opposition parties, as they deemed it appropriate to strengthen public security institutions under the coordination of civilian leadership.
Contact:
Laura Camacho
Executive Director Miranda Public Affairs
laura.camacho@miranda-partners.com
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