Mexico Deficit Runs US$15.3 Billion Below Plan

Rio Times Markets · Mexico

Mexico’s public finances beat the official plan through August 2026. A surge in value-added tax and oil money offset a weak income-tax season and kept the deficit on the path Congress approved for the year.

Mexico’s Finance Ministry closed the first eight months of 2026 with a budget deficit of MXN 739 billion, roughly US$40.9 billion. That was MXN 276 billion (about US$15.3 billion) less red ink than the program allowed. The ministry published the figures on 30 September in its monthly report to Congress.

The budget balance measures the difference between what the public sector collects and what it spends. The broader public balance also counts entities under indirect budget control.

The report lands in a sensitive month. Rating agencies have Mexico under watch, Congress is debating the 2027 budget, and the peso just posted its weakest month in more than two years.

Where the money came from

Budget revenues reached MXN 5.66 trillion (about US$313.3 billion) between January and August, up 1.3 percent in real terms from the same period of 2025.

Value-added tax, known in Mexico as IVA, did the heavy lifting. Collections reached MXN 1.19 trillion (about US$65.9 billion), up 11.4 percent in real terms, the strongest January to August since 2021. August alone grew 23 percent. The ministry credited strong consumer spending and tighter customs work, and said IVA ran MXN 123 billion, about US$6.8 billion, above the program.

Oil income provided the second engine. Oil revenues rose 10.5 percent in real terms to MXN 690.4 billion, about US$38.2 billion, the best for the period since 2022. The average export price was US$75.2 a barrel against US$63.3 a year earlier. Revenue at Pemex, the state oil company, rose 13.6 percent.

The weak spot was income tax, or ISR. Collections fell 5.6 percent in real terms to MXN 2.00 trillion (about US$111 billion). Taxes on imports rose 9.2 percent, but still came in MXN 39 billion (about US$2 billion) below plan, which the ministry blamed on the stronger peso.

Where the money went

Spending stayed below plan too. Social development outlays rose 8.4 percent in real terms, more than three times the average pace of the past decade. Health spending rose 14.3 percent and education 7.3 percent.

Physical investment rose 1.9 percent in real terms, helped by a 22.3 percent jump in August that the ministry linked to strategic infrastructure projects. Operating spending outside payrolls fell 4.4 percent.

The interest bill is shrinking. Debt service costs fell 3.5 percent in real terms and ran MXN 122 billion (about US$6.8 billion) below the program. The ministry credited liability management and the stronger peso.

The debt picture

The historic balance of public-sector financing requirements, the broadest Mexican debt measure, stood at 51.5 percent of GDP at the end of August. Net federal government debt was 48.4 percent of GDP. Most of the debt is in pesos, at fixed rates and long maturities, which limits currency risk.

The ministry also stressed market gauges. Mexico’s five-year credit default swap, the cost of insuring against a default, fell to 78 basis points at the end of August from 120 at the start of the current administration. The yield gap against the ten-year US Treasury bond narrowed by 30 basis points over the same period.

On 27 August the government closed its 2026 foreign issuance with a samurai bond of 282.8 billion yen, about US$1.77 billion. The Japanese rating agency JCR assigned that bond an A- grade with a stable outlook on 28 August.

Why this report matters now

The publication is the ministry’s answer to a skeptical audience. S&P placed Mexico, Pemex and the Federal Electricity Commission on negative outlook in May, citing fiscal strain. Parts of the market now price Mexican debt close to junk levels, a debate covered in Mexico Inches Toward Junk Status as Fiscal Math Unravels.

The government’s message is discipline. “At the end of August, the fiscal balances showed results favorable relative to the program, with a budget deficit lower than forecast, in line with the annual targets approved by Congress and the objectives of fiscal discipline, wellbeing and economic growth,” the ministry wrote in its statement.

Timing supports the argument. Congress is now debating the 2027 budget, which loosens the deficit goal to raise welfare spending ahead of the June 2027 mid-term elections. A clean August report strengthens the ministry’s hand in that negotiation.

What is not yet known

The September figures will not appear until around the end of October. It is too early to say whether August’s discipline held through the first month of the fourth quarter.

The report does not say how much of the IVA surge is durable and how much reflects one-off customs enforcement. Nor does it explain the income-tax decline; the ministry gave no breakdown by sector or employment type.

Finally, the report does not settle the 2027 debate. The final deficit path for next year depends on the budget Congress passes, on Pemex support costs, and on the oil price, all of which remain open.

What holds, and what could reverse

The August number is better than the plan, but it rests on a narrower base. The ministry said 2025 benefited from extraordinary one-time revenues; this year, non-tax revenue fell 8.0 percent in real terms.

What holds is the structure: a primary surplus, rising tax revenue, a falling interest bill and a debt stock mostly in local currency. What could reverse it is also clear. Fuel subsidies kept draining the gasoline and diesel tax line, which fell 5.0 percent in real terms. The oil windfall depends on a price Mexico does not control. And a weaker peso would raise the cost of servicing whatever dollar debt remains.

For readers living in Mexico, the channel runs through the currency and interest rates. The peso ended September near 18.08 per dollar, its weakest month in more than two years, and traded past 18.26 on the morning of 1 October, as covered in Mexican Peso Hits Its Weakest Since December 2025. A credible deficit path supports the peso and keeps local borrowing costs contained. That affects mortgage rates, the price of imported goods and the value of any dollar income.

The finance ministry’s next monthly report, due in late October, will show whether the August result was a milestone or a pause.

Frequently Asked Questions

What is the difference between Mexico’s budget balance and its public balance?

The budget balance covers the federal government plus state-controlled entities such as Pemex, the CFE utility and the social security institutes. The public balance adds entities under indirect budget control. This article uses the budget balance, which showed a deficit of MXN 739 billion (about US$40.9 billion) through August.

Why did VAT receipts rise while income tax fell?

Consumption stayed strong and customs enforcement improved, so IVA grew 11.4 percent in real terms. Income tax depends more on corporate profits and formal payrolls, which softened this year. The ministry did not give a detailed reason for the 5.6 percent drop in ISR.

What does the August fiscal report mean for foreigners in Mexico?

A deficit below plan supports the government’s credit story, which tends to steady the peso and contain interest rates. For expats, that feeds into mortgage costs, local prices of imported goods and the peso value of dollar income. The report is one month of data, not a verdict on the year.

Sources: Secretaría de Hacienda y Crédito Público, Comunicado No. 78, “Finanzas públicas y deuda pública a agosto de 2026”, 30 September 2026; La Jornada, 30 September 2026; Revista Fortuna, 30 September 2026; La Opinión, 30 September 2026 (Banxico FIX via the Official Gazette); the RT economic calendar. This is news, not investment advice.

This article was produced by The Rio Times’ automated newsroom system. How we use AI · Report an error

LatAm Markets: Live Signals → — real-time movers, turnover leaders and FX across Latin America.