Mexico Faces Lower Oil Revenues, Budget Cuts and Higher Debt Costs In 2023-24

The country’s Treasury predicts 3% economic growth this year and next, but used a lower rate to calculate the macroeconomic variables

The Mexican economy grew 3% in 2022 and the government is confident of replicating that level in 2023 and 2024 with the boost brought by nearshoring, and despite forecasts of a global slowdown and a possible recession in the United States.
April 03, 2023 | 04:23 PM

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Mexico City — Although the government of Mexico’s President Andrés Manuel López Obrador (AMLO) is optimistic about economic growth towards the end of his six-year term, which ends in 2024, the country’s treasury (SHCP) expects lower oil revenues, a cut in public spending and higher debt financing costs for 2023 and 2024.

The Mexican economy grew 3% in 2022 and the government is confident of replicating that level in 2023 and 2024 with the boost brought by nearshoring, and despite forecasts of a global slowdown and a possible recession in the United States.

In the final stretch of AMLO’s administration, 3% growth is forecast for both 2023 and 2024, with a range for 2023 going from 2.2% to 3% and from 1.6% to 3% for 2024, according to the 2024 General Economic Policy Pre-Criteria sent to Congress on March 31.

The SHCP admits that the economic outlook presents challenges for this year and which may possibly extend into 2024. However, it bases its optimism on the growth of domestic demand, which has been strengthened by the labor market, social programs, public and foreign investment, and the relocation of companies to Mexico.


Although the treasury expects the economy to grow up to 3% this year and in 2024, for the purpose of updating public finances for the aforementioned years, it used a lower GDP growth rate for its calculations.

In other words, for 2023 the middle value of the range of economic growth used to calculate the different macroeconomic variables and public expenditure projections is 2.6%, while for 2024 it is 2.3%.

As a result, the treasury made downward adjustments to revenues and the budget, including oil revenues, public spending and financial costs linked to debt.


Oil revenues

The treasury expects budget revenues to be lower than anticipated in its prior forecasts, which were 7.12 trillion pesos, and which it revised downward to 6.99 trillion pesos, a drop of 131.53 billion pesos, and which is due to lower anticipated oil revenues.

The approved amount of oil revenues was 1.31 trillion pesos ($72.5 billion), while now 1.15 triillion pesos is expected, which means a drop in expected revenues from the sale of crude oil of 162.80 billion pesos ($9.01 billion).

For 2024, budget revenues are estimated at 7.53 trillion pesos ($417.1 billion), similar to the amount originally approved for 2023, while oil revenues are expected to total 1.18 trillion pesos ($65.3 billion), which would be 14.3% lower in real terms than what was approved for 2023, and 2.2% lower than the new estimate for the end of 2023.

Lower oil revenues are associated with a lower price of the Mexican oil mix.


The average Mexican oil price is expected to be $66.60 per barrel in 2023, lower than the approved price for this year, which was $68.70 per barrel.

For 2024, a quotation of $56.30 per barrel is estimated, $10 lower than the price at which crude oil is expected to close in 2023.

The oil prices projected by the treasury in its March 31 report were based on a scenario of downward pressure on international prices due to supply surpassing global demand, as well as the accumulation of inventories.


However, on Sunday, OPEC+ unexpectedly announced cuts in crude oil production, which caused oil prices to rebound. WTI and Brent rose above $80 per barrel.

Spending cuts

Given the expectation of lower revenues in the public sector, the treasury will apply a cut to the 2023 budget, although it expects to increase public spending in 2024.

The budget approved for this year amounted to 8.25 trillion pesos ($456.7 billion), but which was cut by 131.5 trillion pesos, leaving an adjusted budget of 8.12 trillion ($449.5 billion).

The cut in public spending will not affect social programs and works related to infrastructure projects such as the Maya Train, the Dos Bocas oil refinery and the Interoceanic Corridor, which will continue to be prioritized in the budget.


For 2024, a year in which presidential elections will be held, public spending is estimated at 8.42 trillion pesos, a real decrease of 2.7% compared to the spending originally approved for 2023 ,and a 1.1% real reduction against the 2023 closing estimate.

The adjustment in next year’s spending will fall on programmable spending on this administration’s priority infrastructure projects, as these will be in their final stages, while support will continue to be given mainly to spending on social programs.

More costly debt

The cut in public spending coincides with an increase in the financial cost of Mexico’s debt, although the treasury affirms that public finances have not been compromised by the increase in international interest rates.


“Pressures due to the increase in the financial cost are contained and do not represent a risk,” it said.

The financial cost of the debt approved for 2023 was 1.07 trillion pesos ($59.2 billion), an unprecedented amount within public finances, however, an increase of 21.22 billion pesos ($1.17 billion) is estimated, with the government’s interest payments on debts set to rise to 1.10 trillion pesos ($60.8 billion).

The above is the result of higher interest rates, as well as constant upward revisions in expectations regarding the terminal level of rates, and the amount of time they will remain at such levels, the treasury said.


By 2024, the cost of debt is projected to have another slight increase to 1.12 trillion pesos ($62 billion).

The treasury says the observed increase in the financial cost compares favorably with other similar episodes.

For example, in the period 2015 to 2019, the reference rate increased by 425 basis points and the growth of the financial cost was 37.7% in real terms; however, for the period from 2021 to 2022, the reference rate increased by 625 basis points and the increase in the financial cost was 10% in real terms.