2026/07/01 | Julia Passabom & Mariana Ramirez
The Ministry of Finance released its May public finance report. Through May, real revenues in the year declined 1.8% YoY, mainly reflecting lower oil production and softer income tax collection. Excise tax revenues on goods and services increased 6.9% YoY, supported by taxes on sugary beverages, non-caloric sweetened drinks, and tobacco products, partially offsetting broader revenue weakness. However, this performance appears to rely largely on tax-rate effects and relatively inelastic demand, limiting its potential as a sustainable source of revenue growth. Meanwhile, revenues from gasoline and diesel rose 5.4% YoY, benefiting from higher international oil prices despite the government's decision to reinstate fuel subsidies in mid-March.
On the expenditure side, real spending in the year through May rose by 2.3% YoY, driven primarily by higher allocations to administrative entities and social programs. In contrast, capital expenditure declined, reflecting lower investment in transportation and energy projects. Other operating expenses fell 8.1%, consistent with the government's fiscal consolidation strategy. Nevertheless, the adjustment remains uneven, as spending restraint has been concentrated in investment and discretionary items, while more rigid expenditure components have shown limited adjustment.
Net public sector debt stood at 50.6% of GDP in May, well below the Ministry of Finance's YE 2026 projection of 54.7%. On a rolling 12-month basis, the Public Sector Borrowing Requirements (PSBR) reached 4.5% of GDP. While debt metrics remain broadly contained, fiscal buffers continue to narrow amid weaker revenue performance and growing contingent liabilities.
Our take: Monthly fiscal balances continued to weaken through May as revenue performance remained constrained by lower oil-related income and softer tax collection, underscoring the challenges of delivering fiscal consolidation amid a slowing economy. Although excise taxes and fuel-related revenues provided some support, these sources are unlikely to fully offset broader revenue headwinds over the medium term. Indeed, government revenues came in 1.4% below the government's forecast for the period, suggesting that revenue assumptions may become increasingly difficult to achieve.
On the expenditure side, the ongoing compression in capital spending remains the main driver of fiscal consolidation. Public investment in transportation and energy projects continued to decline, reinforcing our view that the consolidation strategy is relying disproportionately on investment cuts rather than broader expenditure rationalization. Government spending through May stood at 39.3% of the annual budget approved by Congress, while more rigid expenditure categories, including social programs and administrative spending, have remained relatively resilient.
This dynamic is particularly relevant in light of the government's recently announced 2026–2030 Infrastructure Investment Plan, which seeks to mobilize investment equivalent to around 2% of GDP through a combination of public, private, and mixed financing schemes. While the strategy could help support medium-term growth, Mexico's historical execution rates—typically closer to 50%—and the natural lags associated with infrastructure delivery suggest that the economic impact is likely to be gradual. As a result, the growth impulse will depend less on announced amounts and more on execution capacity, project selection and the plan's ability to crowd in private investment.
Meanwhile, net public sector debt remained contained at 50.6% of GDP, below the Ministry of Finance's medium-term projections. Nevertheless, fiscal risks have become more relevant. Recent reforms have expanded the use of mixed and off-budget financing mechanisms for infrastructure projects, increasing execution flexibility but reducing transparency and potentially raising contingent liabilities over time. In our view, fiscal sustainability will increasingly depend on the government's ability to preserve credible fiscal anchors while advancing its investment agenda.
Looking ahead, investor attention will increasingly shift toward the 2027 budget proposal, due by September 8. The signals released so far point to continuity in the government's strategy of gradual fiscal consolidation following the fiscal expansion observed in 2024–2025. The key question will be whether the authorities can simultaneously advance their infrastructure agenda, meet deficit targets, and stabilize debt dynamics in a more challenging macroeconomic environment.
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