Mexico’s President Andrés Manuel López Obrador (AMLO), known for his initial fiscal conservatism, has shifted gears dramatically.
He’s increased government spending to levels not seen since the 1980s, aiming to strengthen the state-owned oil company Pemex and complete major construction projects.
This spending spree has led to the largest budget deficit in decades, potentially straining Mexico’s finances for the next administration.
AMLO’s approach marks a departure from his early days in office, where he kept a tight leash on the country’s budget, even during the pandemic.
Contrastingly, he now boosts support for students, retirees, and advances in significant infrastructure projects.
This fiscal strategy seems to pave the way for Claudia Sheinbaum, AMLO’s party’s candidate, to win the upcoming June elections.
Sheinbaum, leveraging her lead in the polls, especially in poorer southern states, campaigns on continuing the welfare programs that have bolstered AMLO’s popularity.
Regions like Oaxaca have embraced the spending increase, observing real growth and improvements, a clear shift from past governance.
Mexico’s Budget Balloons as AMLO Prepares for Election
Sheinbaum, however, may face financial hurdles due to escalated spending, with debt service costs expected to reach a three-decade high.
This raises concerns about Mexico’s ability to maintain its investment-grade credit rating without resorting to unpopular measures like tax increases or spending cuts.
Yet, Mexico’s relatively low debt level provides some cushion against the fiscal expansion’s immediate effects.
Analysts note that despite past administrations causing financial crises, current policy changes haven’t upset markets, with the peso leading in emerging market currencies.
The focus now turns to the long-term sustainability of AMLO’s spending increase and its implications for Mexico’s economic health and fiscal policy direction.