In a situation of lower economic growth, cuts to public spending, as well as lower interest rates and inflation, the financial cost of public debt will increase in 2025 as a percentage of the Gross Domestic Product (GDP), reaching a level never seen before. in accordance with what is proposed in the 2025 Economic Package.
The financial cost of the debt, which includes both that contracted in local and foreign currency, considers expenses such as the payment of interest and others. This item is one of the great pressures on public spending that, year after year, has been increasing to unprecedented levels.
The projection of the Ministry of Finance and Public Credit (SHCP) is that next year, the government of Claudia Sheinbaum will disburse 1.38 billion pesos for the financial cost of the debt, which represents a growth of 5.4% compared to what approved for this year.
With this, debt service will be at 3.8% of GDP next year, higher than the level of 3.7% that is expected to end this year. What would be spent on the cost of the debt would even be greater than what the government will allocate next year to the health sector, where the estimated level is 2.5% of GDP.
The increase in financial costs occurs in an environment where lower interest rates are expected due to a normalization of monetary policy. According to the Treasury, it is expected that in the same year the nominal interest rate will close at 8%, with which it would be expected that the Bank of Mexico (Banxico) will continue to cut its interest rate, which is currently at 10.25 percent.
“By 2025, a stable level of public debt as a percentage of GDP is estimated, lower inflation is expected, and an exchange rate without significant variations. Given this scenario, the debt policy will maintain the financial cost at low and sustainable levels, by prioritizing internal financing with placements of long-term, fixed-rate instruments. External financing will continue as a complementary source, being carried out only when conditions are favorable. In addition, the external debt will remain diversified in different currencies, in order to mitigate the exchange risk,” said the Treasury.
The agency, headed by Rogelio Ramírez de la O, pointed out that the financial cost as a proportion of GDP in 2025 is affected by various factors, such as the level of interest rates, the exchange rate, the existing debt stock, the expected growth, as well as the financing contracted during the year.
Pressure on public spending
The financial cost is one of the pressures of public spending that has grown year after year. By 2025, the government will allocate 15 of every 100 pesos allocated to this area, which limits the fiscal space available to address other budget items, such as health, education, security, among others.
“The consequence of increasing the financial cost is that it directly affects the flow of resources available to the government, its liquidity. The debt service is very high, there is room for around 2.3 times the expense of the Mayan Train, just to give us an idea. And although sometimes the public debt does not grow, what is maintained is the payment of interest. This is what it costs us to maintain the debt,” said Luis Pérez de Acha, tax lawyer and partner at the Pérez de Acha e Ibarra de Rueda law firm.
The increase in the financial cost for the following year, indicated Ricardo Cantú, researcher at the Center for Economic and Budgetary Research (CIEP), was also due to the increase in the Historical Balance of the Financial Requirements of the Public Sector (SHRFSP), the debt in its measure wider.
This balance, he recalled, went from 46.8% of GDP in 2023 to 51.4% of GDP at the end of this year.
“That historical balance, and those interest rates are reflected. Although the indicator remains constant as a percentage of GDP, the balance continues to increase. If the balance continues to grow, the financial cost continues to grow,” insisted the CIEP researcher.
According to what is projected by the Ministry of Finance, the SHRFSP will reach 18.59 billion pesos in 2025, 6.2% more than what was approved for this year.
