Published on Friday, August 25, 2023

Mexico | Fiscal reform proposal

The next federal government will face a strong pressure on its public finances derived from current spending, pensions and the needs of higher physical investment.

Key points

  • Key points:
  • Even though the Ministry of Finance projects that Public Sector Borrowing Requirements (PSBR) will be reduced from 4.1% of GDP in 2023 to 2.7% in 2024 and will remain on this level through 2028, the fall of PSBR is mainly due to a reduction of physical investment from 3.6% in 2023 to 2.2% in 2024-28.
  • The Ministry of Finance forecasts that the Historical Balance of PSBR will be steady around 49.4% of GDP in 2023-28.
  • An alternative scenario to the one describe before, which would keep physical investment at 3.6% of GDP and current spending one percentage point of GDP above the Ministry of Finance’s target forecast in 2025-28, would imply PSBR of 5.1% of GDP and a Historical Balance of PSBR of 51.8% during this four-year period.
  • This more likely scenario reveals the need to design and implement a fiscal reform that will increase tax revenue in at least 2.4 percentage points of GDP.

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