A few days ago, economist Carlos Ramírez Fuentes, partner of Integralia and former president of CONSAR, published a graph on the X platform, with data from the International Monetary Fund. He shows that the gap between what the government takes in and what it spends is widening. In 2017, the national government of Mexico spent 25 percentage points of national income and collected 24. Today it collects 24.4, and spends 30.3 percent, that is, according to these figures, the public deficit, which was one point of GDP, It is almost 6 today.
Claudia Sheinbaum said in an interview with Enrique Quintana, about this her newspaper The financial, who wanted Secretary Ramírez de la O to repeat his position. Maybe he doesn’t want him to take the secret recipe to finance that deficit.
Rogelio Ramírez de la O himself has said that, in the coming years, there will be no emblematic works, and that the deficit will be absorbed quickly. It’s good that the secretary thinks that; But his job is not to be optimistic; is to be realistic. I imagine that the secretary’s optimism does not include minimal investments in water and electricity. Suppose there is private capital for all that, and room in the heart of the next president to live with that dent in national sovereignty. Still, the expenses will eat us alive.
Surely other economists, even some less orthodox than Ramírez Fuentes and myself, will agree that a deficit of six percent of GDP per year, in an environment of high rates, is very high. But, Ramírez de la O surely already proposed some solution scenarios. Let me, dear reader, venture one of my own. Let’s say that they achieve one point of additional GDP collection per year in the next six years, and they close the deficit. How are they going to finance the current debt?
Even reaching 2030 with zero deficit, we will accumulate 19 percent of GDP in debt, assuming a modest interest in financing the adjustment period. The debt of the Mexican State today is around 46 percent of GDP, almost 15 trillion pesos. Assuming that the cost of that debt remains constant, we will pay close to 1.25 billion pesos annually for its maintenance. That will be about 4 percent of GDP per year; In six years of the six-year term, if the cost of debt is added to the capital we already owe, it can reach 24 percent of GDP.
If Sheinbaum, or Gálvez, want to keep public spending constant over the next six years, they will have to borrow for the deficit and interest on debt. How much? Well, lower your hand, 43 additional points of GDP; consisting of 19 of deficit financing, and 24 to pay interest.
So, without fiscal adjustment, Mexico’s public debt could reach 90 percent of GDP, that is if growth, revenue collection or interest rates do not fail us. If they do not adjust the deficit, the number may be closer to 122 percent of GDP, because financing six points of deficit for six years, at a low interest rate of 6%, costs 51 percent of GDP; not 19, as would occur with a six-year adjustment plan.
Hopefully the idea of not doing more emblematic works is a campaign promise and we really don’t plan another refinery or train. However, we will need public investments. In the next administration we will have to invest in water and electricity. We will need money for the eternal tasks: health, security and education. Under reasonable assumptions, the investments necessary for the improvement of national institutions, according to a recent book in which I participated called “Looking forward”, require between 9 and 11 points of GDP.
If we charge these institutional improvements to the national debt, then the debt at the end of the 2024-2030 six-year term could reach 99 and even 133 points of GDP, depending on how much they reduce the deficit. And that, without talking about the additional pressure that pensions will have on public finances. If we think that the payment of pension obligations will require, throughout the six-year term, at least another 5 to 7 points of the product, and we also finance it with debt, then the national debt can reach between 104 and 140 percent of GDP.
Mexico needs a tax reform. Not only does revenue increase; It has to reduce spending and make the government efficient. If the campaigns do not talk about this, then the candidates cannot be surprised when there is no peso and people are angry after June 2.
