Welfare, Defense, and Energy stand out for their increased budgets due to higher social spending and more transfers for the Maya Train and Pemex

While the budget proposal would lift Mexico’s fiscal deficit above the BBB forecast median of 2.8%, a credit rating downgrade is unlikely

We expect this trend of higher spending to persist into the next sexenio, which is likely to be led by MORENA’s Claudia Sheinbaum. Still, the next administration may struggle to address the impact of increases in social spending and infrastructure investment on Mexico’s debt-to-GDP ratio from 2025 onward. It will also find it increasingly burdensome to replicate the current government’s level of support for Pemex. Firms should anticipate additional pressure on the MXN in 2024 and into the next presidential term, particularly if Mexico’s fiscal situation deteriorates further, impacting the market’s sovereign credit rating.

AMLO’s administration will have a record budget in its last year to be able to meet all payment commitments, from priority social programs and mega infrastructure works, to unavoidable expenses such as pensions and the financial cost of the country’s debt. However, lower revenues and higher debt levels will result in a four-decade record-high fiscal deficit, raising concerns over a possible cut in the country’s credit rating.


  • On September 8, AMLO’s administration submitted its 2024 budget proposal to Congress, which made headlines for posing a fiscal deficit of 5.4% in real terms, the highest since 1988. The 2024 Proposed Federal Expenditure Budget anticipates that net spending will amount to MXN 9.07 trillion, registering an increase of 4.3% compared to 2023.
  • Social programs continue to be a priority for AMLO, representing 41% of the total budget (MXN 3.76 trillion). The Secretary of Welfare, the state agency with the largest budget, will allocate 85.5% of its resources to the Pensions for the Elderly program in 2024. 
  • Defense and Energy stand out in the budget, with 121% and 273% increases, respectively, compared to 2023. Defense will receive MXN 142.2 billion for a transfer of the Maya Train that was previously managed by the Secretary of Tourism, while Energy will see MXN 171 billion for investments in Pemex.
  • The 2024 budget includes extensive federal support for Pemex, as oil revenue is expected to fall by 24% compared to 2023. It proposes further reduction in Pemex’s profit-sharing duty (DUC) payments, to 35% from 40% (and down from 65% when AMLO took office). Pemex will also receive direct transfers of US$ 8.25 billion to boost its liquidity. Fitch Ratings indicated that this decision by the Mexican government was “directionally positive” because it contained the size of the contingent liability to the sovereign represented by Pemex’s debt.
  • According to Fitch Ratings, the widening deficit will contribute to public debt increasing to 48.8% of GDP in 2024 from 46.5% this year. Nonetheless, this figure is well below the forecast median of 56% for BBB-rated countries.
  • The 2024 budget contemplates more than MXN 222.6 billion for priority investment projects, representing 2.5% of the total budget. The Maya Train will account for 54% of the resources allocated to this category. 
  • Mining companies have raised concerns over the new budget, as the Mexican Geological Survey, the only institution authorized to carry out mining exploration projects, will only receive MXN 1.32 billion, 4% of what this activity demands. This will jeopardize the development of new deposits, making Mexico’s mining sector less attractive to investors.
  • At the end of October, both the Chamber of Deputies and the Senate will vote to approve the Revenue Law. On November 15, the Chamber of Deputies will approve the Federal Expenditure Budget.
  • Despite the opposition’s backlash, major changes in the 2024 budget are unlikely, as the ruling MORENA party coalition holds a sufficient majority to pass the Federal Expenditure Budget as it is.

Our View

Although AMLO’s 2024 budget proposal would lift Mexico’s fiscal deficit above the BBB forecast median of 2.8%, a sovereign credit rating downgrade is still unlikely, as Mexico maintains a low level of indebtedness compared to other similar countries thanks to its record of fiscal prudence. It is also worth noting that the budget uses a conservative oil price (US$ 56.7 a barrel versus US$ 89.5 as of September 25) and exchange rate assumptions (annual average 17.1 MXN: USD versus our forecast of 18.8 MXN: USD), meaning oil revenue could be stronger than expected. In the event of peso depreciation, higher oil revenue more than compensates for the increased costs of serving external foreign-currency debt. Likewise, our forecast of 2% for the real growth GDP in 2024, although well below government estimates of 2.5–3.5%, implies a degree of resilience to a US economic slowdown, thus supporting revenues. 

However, firms should note that given that 80% of spending is committed to pension payments, and debt costs and revenues are projected to decline, fiscal space will be reduced by half in 2024 compared to 2023. This limits Mexico’s ability to pursue long-term macroeconomic and financial stabilization and face future unforeseen events that could compromise its economic growth.

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