Mexico’s federal public debt is projected to approach 55% of GDP by 2028 as rising debt-service costs and persistent fiscal pressures strain public finances. With an estimated 17% of government revenues allocated to interest payments, fiscal flexibility is narrowing, limiting resources available for infrastructure, healthcare, and public security. Against a backdrop of weak economic growth, the trend is raising concerns over fiscal sustainability, weakening investor confidence, and increasing the risk of higher sovereign borrowing costs.
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Mexico’s public debt burden is on track to approach 55% of gross domestic product (GDP) by 2028, according to Renzo Merino, vice president and senior credit analyst, Moody’s Ratings, underscoring growing concerns about the country’s fiscal trajectory amid slower economic growth and rising debt-service costs.
Speaking on Grupo Financiero Banorte’s Norte Económico podcast, Merino said Mexico’s debt-to-GDP ratio has climbed rapidly, rising from approximately 40% in 2023 to nearly 50% in 2025. Market estimates point to further deterioration, with net public debt projected to reach 54% of GDP by 2029 as fiscal deficits remain elevated. Mexico recorded a fiscal deficit of roughly 5% of GDP in 2025 after posting a 5.3% deficit in 2024.
Merino attributed the trend to persistent spending pressures and repeated deviations from fiscal rules designed to preserve debt sustainability. He noted that Mexico has failed to fully adhere to elements of its fiscal framework established in 2006 and updated in 2023, particularly regarding expenditure controls and structural balance objectives. “In recent years, we have been concerned about Mexico’s ability to reduce its fiscal deficit because there has been non-compliance with the institutional fiscal framework since 2023,” Merino said.
According to Moody’s, the erosion of fiscal discipline risks undermining policy credibility and could eventually translate into higher financing costs, a pattern observed in other Latin American economies such as Brazil and Colombia.
A growing share of public resources is being directed toward debt servicing. Interest payments now absorb approximately 17% of government revenues, compared with 10% to 11% in 2021. Together with rising pension obligations, these fixed expenditures are narrowing the government’s fiscal flexibility and limiting its capacity to invest in infrastructure, healthcare, education, public security, and other development priorities.
Economic growth has also weakened, further constraining revenue generation. Mexico’s economy expanded by 0.8% in 2025 and grew just 0.2% during the first quarter of 2026.
Moody’s Cuts Mexico’s Sovereign Credit Rating
Against this backdrop, Moody’s Ratings downgraded Mexico’s sovereign credit rating to Baa3 from Baa2 in May 2026, leaving the country one notch above non-investment-grade status. The agency simultaneously revised the outlook from negative to stable, ending a review process that began in late 2024.
The downgrade represents Moody’s third reduction of Mexico’s sovereign rating since 2020. The agency lowered the country’s rating from A3 to Baa1 in April 2020 and from Baa1 to Baa2 in July 2022.
Moody’s now aligns with Fitch Ratings, which assigns Mexico a BBB- rating. S&P Global Ratings maintains a BBB rating but recently revised its outlook to negative, citing concerns over the government’s fiscal consolidation efforts.
The sovereign action also triggered downgrades across several Mexican institutions. Moody’s lowered the ratings of eight financial institutions and downgraded the Federal Electricity Commission (CFE), while affirming the B1 Corporate Family Rating and government-backed senior unsecured ratings of PEMEX.
According to the agency, the downgrade reflects the continued weakening of Mexico’s fiscal position and the rigidity of its spending structure. Moody’s argued that policy priorities centered on income redistribution and energy sovereignty have contributed to wider fiscal deficits and faster debt accumulation than previously anticipated.
The agency also highlighted the ongoing fiscal risks associated with PEMEX, noting that the federal government remains highly likely to continue providing financial support to the state-owned oil producer.
Moody’s concurrently reduced its outlook for Mexico’s economic growth, forecasting expansion of less than 1% in 2026 and 1.3% in 2027. While the country benefits from preferential access to the US market, the agency said long-term growth prospects remain constrained by informality, insecurity, and infrastructure deficiencies, particularly in the energy and water sectors.
Analysts Warn of a Narrow Window for Reform
Market participants view the downgrade as a warning that Mexico must strengthen its fiscal position to preserve investor confidence and avoid further rating pressure.
Paulina Aguilar, CRO and Co-Founder, Mundi Trade, wrote that sovereign rating actions have direct implications for businesses because they influence financing conditions throughout the economy. “In practical terms, when Mexico’s sovereign floor drops, the cost of credit rises across the system,” Aguilar said. Higher borrowing costs, she added, can affect exporters dependent on working capital, SMEs seeking to integrate into nearshoring supply chains, and large companies managing extended payment cycles.
Analysts argue that the stable outlook provides policymakers with a limited opportunity to restore confidence. Carlos López Jones, Director of Economic Trends, said Moody’s is effectively waiting to see whether the government can demonstrate meaningful fiscal discipline over the next two years.
“They are giving us an 18-month window. They want to know what spending will look like in 2027 and 2028,” López Jones said. Failure to implement credible fiscal adjustments, he warned, could lead to renewed downward pressure on Mexico’s rating outlook.
Banamex analysts have similarly argued that addressing the financial challenges facing PEMEX and the CFE will be critical to maintaining investment-grade status. While Mexico’s manufacturing exports to the United States reached a record US$535 billion in 2025, Aguilar cautioned that strong trade performance alone will not offset fiscal vulnerabilities.