What You Need to Know About Mexico’s Proposed 2025 Economic Package

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Angélica Simón Ugalde

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Publicado: 19/11/2024 · 2:51 p.m. MX | Actualizado: 19/11/2024 · 2:51 p.m. MX

The organization México ¿Cómo Vamos? and the Ministry of Finance and Public Credit (SHCP) submitted the document to the Chamber of Deputies for review. They published its analysis, “A First Look at the 2025 Economic Package”. The study highlighted vital points.

According to the Mexican government’s information, economic growth is expected to range between 2.0% and 3.0% in real annual terms, with a debt level of 3.9% of GDP. While this figure is higher than that reported in April of this year, it is lower than the anticipated 5.9% of GDP for 2024.

The proposed approach to fiscal consolidation emphasizes boosting budgetary revenues, especially from non-oil sources, while also cutting programmable spending that supports healthcare, education, and public safety services. This strategy has raised concerns among experts.

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Key Points of the 2025 Economic Package

These are the highlights emphasized by México ¿Cómo Vamos?:

Debt and Debt Balance

• According to the Federal Revenue Law Initiative, the federal government’s net debt for 2025 will be 17% lower than the amount approved in the 2024 Revenue Law.
• A sharp reduction in debt for 2025 could negatively impact the quality of essential public services to the detriment of the most vulnerable populations.
• The estimated debt-to-GDP ratio remains at 51.4%, consistent with the SHCP’s projected year-end balance for 2024.

The Path to Fiscal Consolidation (2025–2030)

• The SHCP projects a positive primary balance throughout the period, although it is expected to decrease over time.
• Revenue-sharing allocations fund education, healthcare, and public safety in states. As these allocations decrease, the need for more extraordinary local tax collection efforts will be emphasized.
• Non-oil revenues, derived mainly from tax collection, are expected to remain stable at around 19% of GDP. This projection assumes improved tax compliance and sustained economic growth.

Social Priority Programs:

• Nearly 60% of the budget for social priority programs will be allocated to older adults (Pensions for Older Adults and Support for Women Aged 60–65).
• In contrast, only 22% of the social priority program budget will go toward children, adolescents, and young adults.

Investment Priority Programs:

79% of the investment program budget will be allocated to rail projects, while only 10.5% will go toward hydraulic works.

BBVA Calls for Tax Reform

BBVA Research analysts highlight the need for the government to design and implement tax reform to increase revenue, given the growing fiscal challenges in the coming years. They suggest that the reform should focus on reducing informality and tax evasion.

Given the foreseeable fragility of public finances in the coming years due to pressures from social programs, continued support for Pemex, deteriorating infrastructure from a lack of maintenance, the financial costs of debt, and public pension payments, it will be necessary for the next federal administration to design and implement tax reform to boost tax revenue.

Reducing the education and healthcare budgets is also concerning, as these areas can improve the population’s quality of life in the long term. Tax reform is also needed to reverse these cuts, considering the limited fiscal space currently available to the government,” concludes BBVA’s analysis.

Angélica Simón Ugalde