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The fiscal outlook still looks favourable.

Under President Andres Manuel Lopez Obrador’s recently unveiled budget plan, Mexico will run its largest deficit since 1988 next year – amounting to roughly -4.9 percent of gross domestic product, up from this year’s -3.3 percent. With global interest rates holding near post-2000 highs, higher borrowing costs could threaten credit ratings and limit the next government’s room for maneuver. 

But Mexico’s fiscal position remains more positive than many of its peers. After years of relative austerity under Obrador’s pseudo-populist leadership, the government debt-to-gross domestic product ratio compares favourably with most of the country’s less-developed counterparts and is well below those seen in Argentina or Brazil. And in a somewhat-ironic turn – comparatively expansionary fiscal policy in 2024 could limit the Banxico’s room to cut rates, helping preserve higher returns on peso-denominated assets.

Total credit to the government sector at nominal value, % of gross domestic product

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