Mexico’s Fuel Subsidy Expenditure Surpassed Oil Revenue Surplus In 2022

The country’s surplus oil revenue totaled $21 billion last year, but the government spent more on fuel subsidies to keep prices lower for the end consumer

Mexico's fuel subsidies surpassed the oil revenue surplus in 2022.
January 31, 2023 | 11:27 AM

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Mexico City — Oil surpluses did not fully cover the fiscal gap generated by Mexico’s gasoline subsidies in 2022, which were implemented to contain inflation, and fell short of President Andrés Manuel López Obrador’s estimations.

Mexico saw surplus oil revenues of 394.5 billion pesos ($21 billion) at the end of 2022, but the country’s gasoline subsidies exceeded that amount.

Fiscal stimuli for the so-called special tax on production and services (IEPS) charged on each liter of gasoline and diesel sold implied a fiscal expenditure of 396.6 billion pesos ($21.1 billion) to the close of last year, according to the fourth-quarter public finances report of the Finance Ministry.

The war between Russia and Ukraine drove up oil prices, resulting in higher oil revenues for Mexico, but also in higher fuel prices for consumers amid the highest inflation in two decades.


AMLO, as the president is known, has repeatedly stated that with the surpluses from oil sales the government would assume the cost of the subsidies, which translate as the fiscal stimulus to the IEPS.

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“We will use the oil surpluses to subsidize fuels so that the price of gasoline and diesel does not increase and does not affect us,” he said on March 8, 2022, just a few days after the beginning of the war between Russia and Ukraine.

Oil revenue surplus falls short

Mexico’s oil revenues totaled 1.4 trillion pesos ($74.6 billion) in 2022, which was higher than the one-trillion-peso revenue anticipated in the federal revenue law, implying a revenue surplus of 394.5 billion pesos.


The country’s oil revenues increased 18.7% in real terms in 2022 compared to 2021.

In April last year, the treasury projected a 535.5-billion-peso surplus in oil revenues, but the final amount fell short of that estimate. The estimate was based on a forecast oil price of $55.10 per barrel, but the average price was $34.70 higher per barrel.

However, the increase in oil prices also implied a fiscal cost for the Mexican government.

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The higher price of oil increased the cost of fuels, which under the government’s policy implied activating the IEPS fiscal stimulus, and the fiscal cost of the stimuli amounted to 396.6 billion pesos, above the treasury’s estimate of 395.4 billion pesos. The tax revenues expected from the IEPS tax were 288.6 billion pesos.


Tax offsets revenue surplus

Despite the fact that oil surpluses were insufficient to cover the fiscal spending on gasoline subsidies, the treasury reported a positive balance at the end of 2022 because it benefited from income tax (ISR) revenues to offset the fiscal stimulus in the general balance.

Public sector budget revenues totaled 6.5 trillion pesos ($345.7 billion), 422.4 billion pesos above that estimated, and representing real annual growth of 2.5%.

Tax revenues amounted to 3.8 trillion pesos, 135.75 billion lower than that expected, and 1% lower than in 2021 in real terms. Within tax collection, income tax contributed 2.2 trillion pesos in 2022, which implied a surplus of 196.20 billion pesos, or real annual growth of 11%.

Gabriel Yorio, undersecretary of finance, said in a press conference on Monday that the treasury was able to offset the cost of subsidies with oil surpluses plus additional income from revenues, which ended the year above the estimated amount.

“The fiscal stimulus was a cap on gasoline prices, otherwise inflation would have reached 12% or 14% without the stimulus.”

Gabrie Yorio, undersecretary of finance
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