Country risk variables will remain high and rating agencies will continue to change the outlook for sovereign debt from stable to negative in the coming weeks, Citibanamex warned after the publication of the 2025 Economic Package.
The economic analysis area of the financial group stated that the budget proposal presented on Friday recognizes the need to achieve fiscal consolidation, after the deterioration in recent years.
He recalled in a report published that day that this year the largest public deficit will be recorded in more than three decades, so that public debt will reach 52% as a proportion of GDP, from 44% at the beginning of Andrés Manuel López Obrador’s six-year term. .
However, the area believed that the proposal for 2025, which implies a stable public debt for the coming years, has significant weaknesses.
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He indicated that the income expectation is based on economic growth of 2.3% for next year, “counterintuitive” in the context of a public spending cut of 1.5 percentage points of GDP compared to 2024, and significant effects of new tax collection measures.
One day before the presentation of the Economic Package, Moody’s changed the outlook on Mexico’s rating to negative from stable, but maintained the grade at Baa2. The credit rating agency argued a weakening of the institutional and policy-making framework that could weaken the government’s fiscal and economic results.
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The Treasury proposes budget revenues of 8 trillion 56,000 million pesos for 2025, an increase of 3.3% compared to what was approved for this year, while it aims for net spending of 9 trillion 226,000 million pesos, a real drop of 1.9% compared to what was approved for this year, according to the General Economic Policy Criteria for 2025.
He indicated that the Treasury estimates the broad public debt at the end of this year at 51.4% of GDP, the highest proportion since the agency published the indicator in 2000, and 7.8 percentage points of GDP higher than that observed at the beginning of AMLO’s six-year term.
Citibanamex estimated a higher level for broad public debt at 51.9% of GDP due to a spending estimate slightly higher than expected by the government and a higher exchange rate level than projected by the Treasury.
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He noted that as analysis groups anticipated, expenses on “subsidies” (social programs) and “pensions and retirements” will grow from 2.7% to 3% and from 4.4% to 4.5%, respectively.
He considered that given the rigidities of spending, due to demographic issues and political commitments, spending would be 25.7% of GDP, higher than the 25.5% anticipated by the Treasury.
The Treasury maintained its estimate that the Mexican economy will grow between 2% and 3%, with a specific advance of 2.3%.
However, Citibanamex considered it “quite optimistic” compared to the expectation of 1% according to the consensus of analysts surveyed by the financial group.
Read: Treasury delivers 2025 Economic Package to Congress; Public deficit will drop to 3.9% of GDP
Analysis centers such as the Mexican Institute for Competitiveness also considered that the Treasury’s GDP growth projection for 2025 does not coincide with the expectations of international organizations and public and private sector actors.
He recalled that the World Bank foresees 1.5%, the International Monetary Fund, 1.3%, the Organization for Economic Cooperation and Development, 1.2%, Banco de México, 1.2% and BBVA México, 1%.
The analysis center México Evalúa described the official growth estimate as unrealistic.
“In the 16 years from 2008 to 2023, the Treasury’s economic growth estimates fell short on 12 occasions. Less growth means less revenue,” he noted.
Citibanamex added that the official forecast of 1.9 million barrels per day for the oil production platform is also optimistic, since oil production has averaged 1.8 this year and with a downward trend.
He noted that the Treasury’s assumption for the exchange rate at the end of 2025 of 18.5 pesos per dollar is well below its estimate of 21.1 and the consensus estimate of 20.2.
The financial group added that the “questionable” forecast of an exchange rate that appreciates significantly to 18.5 pesos per dollar allows the Treasury to lower its estimate for the external debt.
Due to the above, Citibanamex estimated that public revenues will be lower by 0.4 percentage points of GDP compared to what the government projects, 22.3%.
He added that instead of presenting medium-term estimates that reflect its income and spending policy intentions, the Treasury decided to present inertial estimates, which makes them of little use in terms of
analysis for decision making.
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When considering its estimates, Citibanamex forecast that by 2026 public debt would reach a level of 55.8% of GDP, 4 percentage points of GDP higher than that presented by the government.
“Thus, the decision to postpone the announcement of the necessary tax reform this year comes at the cost of a lack of information for economic agents,” he stated.
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