Mexico sees budget deficit lower in 2026 as growth ticks up, despite uncertainty

Mexican Finance Minister Edgar Amador Zamora delivers the 2026 proposed budget to the President of Chamber of Deputies, Kenia Lopez Rabadan at the Congress building in Mexico City, Mexico, September 8, 2025. REUTERS/Raquel Cunha

MEXICO CITY (Reuters) - Mexico expects its budget deficit to fall slightly in 2026 to 4.10%, as GDP growth is seen ticking up, the finance ministry said during the government's budget presentation.

Mexico's government has been under pressure to narrow the deficit, which it now expects will close 2025 at 4.32%, while maintaining a pledge to boost social programs and shore up the finances of highly indebted state oil firm Pemex.

"Although the international environment still presents risks stemming from uncertainty and trade tensions, it also opens up opportunities that we must seize," Finance Minister Edgar Amador said during the presentation late on Monday.

The government forecasts Latin America's second-largest economy to expand between 1.8% and 2.8% - an increase of 1.3 percentage points on both ends of the range.

That is rosier than both the IMF's growth forecast, which sees a 1.4% expansion in 2026, and the Bank of Mexico's most recent forecast of 1.1% growth.

The ministry also put its inflation forecast for end-2026 at 3.0%, meeting the target set by the Bank of Mexico, which sees inflation converging to target in the third quarter next year.

Along with a slowdown in inflation, the ministry points to a relaxation of the country's monetary policy. "The Bank of Mexico's benchmark interest rate is expected to close at 7.25%, 75 basis points below the original forecast," the budget draft projected for 2025, adding that the rate is expected to continue declining to 6% through 2026.

Banxico, as the Bank of Mexico is known, brought its benchmark interest rate to its lowest level in three years last month with a 25 basis points cut that brought the rate to 7.75% in a divided decision.

Pemex is slated to receive some 263.5 billion Mexican pesos ($14.14 billion) from the government in 2026 to help the firm meet its debt and loan payments, according to the document.

After President Claudia Sheinbaum said last week that her government was considering imposing tariffs on countries such as China that have no trade agreement with Mexico, the budget proposal said the country's 'General Import Tax' would be reviewed for 2026 to encourage national development, without giving any detail.

The draft budget also announced new "healthy taxes" to serve as disincentives for unhealthy products, which would boost taxes on products like soft drinks, video games, and nicotine pouches.

The budget proposal will now be debated by lawmakers in Congress, where Sheinbaum's party and its allies hold strong majorities in both chambers.

($1 = 18.6348 Mexican pesos)

(Reporting by Brendan O'Boyle; Additional reporting by Aida Pelaez-Fernandez; Editing by Stephen Eisenhammer and Ros Russell)