Interest on the Mexican debt monopolizes unprecedented spending

Savings in the payment of interest on the public debt reached 77,612 million pesos last year compared to what was budgeted. The exchange rate, placements to amortize liabilities and the fact that it is a concept that is usually overestimated, can explain these economies, analysts explained.

Despite this, the Ministry of Finance reported record spending in this concept. In 2025, one trillion 310 thousand 761.3 million pesos were allocated only to amortize the country’s public debt, which also reached an unprecedented level of 18 trillion 769 thousand 578 million pesos at the end of last year.

According to the reports released by the agency, the weight of the financial cost of the debt is such that in 2025 it reached an average of 3,591 million pesos per day and the 77,612 million pesos saved (5.6 percent of the total) are equivalent to more than double the budget that the Social Housing Program had the same year.

The difference with respect to the trillion 388 thousand 373.6 million pesos that were initially approved to amortize the country’s public debt throughout 2025, responds to a combination of macroeconomic, financial and accounting factors.

“It does not necessarily imply a deliberate overestimation, but rather reflects the sensitive nature of this item to changes in interest rates, exchange rates, inflation and debt management,” explained Janneth Quiroz Zamora, director of economic, exchange and stock market analysis at Grupo Monex.

Marco Oviedo, economist for Latin America at XP Investments, reported that, from his experience, “it is orthodox to have an overestimation (in this concept) to be prudent,” especially due to the uncertainty of what will come, rates may rise or the exchange rate may move abruptly. “What you cannot do is have an underestimation, because then where do you cut back,” he pointed out.

For four years, the financial cost of public debt has been escalating, after the increase in the Bank of Mexico’s reference rate in June 2021 and meeting by meeting of its governing board it reached 11.25 percent in March 2023, a level at which it remained for a year and then began to decline.

The effects on public finances began to be seen almost immediately. In 2020 and 2021, there were declines in interest payments on public debt, partly because interest rates were relatively low given the slowdown in the economy caused by the coronavirus pandemic.

However, already in 2022 – with the first effects of the increase in the interest rate in the domestic market – the financial cost of the debt grew 10 percent; in 2023 it shot up 21.5 percent; the following year it advanced 5.1 percent; and in 2025 it did 9.8 percent.

This four-year escalation has led to the financial cost of the debt in 2025 being 55 percent higher in real terms than that registered in 2021, when the cycle of increases in the Bank of Mexico rate began.

“The financial cost is estimated based on the assumptions included in the General Economic Policy Criteria, such as the expected reference rate and the yield curve, exchange rate, inflation and maturity profile. Given the size of the historical debt balance, small changes in these variables can generate relevant differences in the final amount,” explained Quiroz Zamora.

From lower effective rates, a strong peso that reduces the cost of external debt and lower inflation that affects indexed debt instruments, such as Udibonos, to the liability management that the Treasury does all the time, they end up adjusting this concept, added the economist.

Although, for a couple of years, savings in the financial cost of debt have been able to nourish the Budget Income Stabilization Fund – the country’s main financial “cushion” in the event of a recession and which was practically exhausted with the coronavirus pandemic –, this mechanism is not automatic. It is only activated when there is a net improvement in the public balance, the specialists explained.