The Mexican economy faces an increasing deterioration in its public finances, which has significantly reduced the margin to maintain its sovereign investment grade—a scenario that could translate into higher financing costs, capital outflows, and lower foreign investment in the coming years.
In its Report on the Economic Situation of Mexico for the second quarter of 2026, Banamex warned that the rising fiscal deficit, the growth of public debt, and the increasing cost of the government’s financial service have begun to trigger red flags among international rating agencies.
The warning comes after Standard & Poor’s modified the outlook on Mexican sovereign debt from stable to negative in May, while Moody’s downgraded the country’s rating from Baa2 to Baa3, just one notch above losing investment grade.
The deterioration of fiscal metrics explains much of the concern. Public Sector Borrowing Requirements closed 2025 at 4.9% of Gross Domestic Product, even above official forecasts, while net government debt reached 52.7% of GDP, its highest level in four decades.
Added to this is a sharp increase in the financial cost of borrowing. For 2026, it is estimated that interest payments on public debt will amount to 1.5 trillion pesos (around 83 billion dollars), equivalent to 4.1% of GDP—a figure that is beginning to compete directly with spending allocated to infrastructure, healthcare, or education.
Banamex points out that the government’s fiscal space has also been reduced by the need to subsidize gasoline prices to contain the impact of international oil price increases stemming from the conflict in the Middle East.
The Ministry of Finance reactivated IEPS subsidies this year, which kept the price of Magna gasoline below 24 pesos per liter, but implied an estimated fiscal cost of 15.8 billion pesos (878 million dollars) in lost tax revenue for the federal government.
The consequences of an eventual loss of investment grade could be profound for the Mexican economy. Among the main risks are forced sales of Mexican bonds by funds with mandates exclusive to investment-grade debt, a potential exclusion from global benchmark indices, pressure on the exchange rate, and an increase in financing costs for banks, corporations, and local governments.
This scenario is also unfolding at a time of lower economic momentum. Banamex estimates that Mexican GDP contracted 0.6% quarter-on-quarter during the first quarter of the year and forecasts growth of just 1.3% for the entirety of 2026, which would imply three consecutive years of expansion below the country’s historical average.
The institution considers that Mexico still possesses significant strengths, including central bank independence, a flexible exchange rate regime, and commercial integration with the United States. However, it warns that restoring investor confidence and stabilizing the trajectory of public debt have become the main short-term economic challenges.
The review of the USMCA, international geopolitical uncertainty, and a global environment of slower growth place additional pressure on an economy that, while maintaining macroeconomic stability, is beginning to show signs of fiscal vulnerability that seemed distant just a few years ago.
