At the same time, Mexico\u2019s public investment remains considerably lower<\/a> than in other Latin American economies, and private consumption\u2019s \u201cslow momentum<\/a>\u201d already started materializing earlier this year amid U.S. uncertainty and lower growth in real wages. Until now, the economic strain, plus recent protests<\/a> over deteriorating public security, has not taken much of the sheen off Sheinbaum\u2019s public image. Still, her approval rating<\/a> has been trending downward, staying at 70% in November, but considerably lower than the 81% she registered in January. While her predecessor,\u00a0Andr\u00e9s Manuel L\u00f3pez Obrador,\u00a0led under weak economic conditions<\/a> without suffering a significant political cost, Sheinbaum may not enjoy the same luxury going forward.<\/p>\n A career technocrat and trained scientist, Sheinbaum is likely looking for a formula to get Mexico\u2019s economy back on its feet. While the road ahead is painful and may go against the political instincts of her leftist party, Morena, three steps would help restore the confidence of investors and everyday Mexicans alike.<\/p>\n Rethinking PEMEX and CFE<\/strong><\/p>\n If Mexico wants to preserve the investment-grade status<\/a> it has enjoyed since March 2000, two ticking time bombs and one long-term issue require urgency and care. The two state-owned companies, Petroleos Mexicanos<\/a> (PEMEX) and Comisi\u00f3n Federal de Electricidad<\/a> (CFE) lead the to-do list. AMLO\u2019s energy policies poured taxpayer money into the two entities without a clear and viable plan to make them profitable and sound.<\/p>\n Between 2019 and 2024, the government transferred the equivalent of almost $71.5 billion to PEMEX\u2014equivalent to 4.1% of 2024<\/a> GDP. This sum accounts for nearly three-quarters of the company\u2019s total debt load of about $100.2 billion, a staggering fiscal support for an archaic and dysfunctional business model that has inhibited much of the needed large-scale private-sector participation via partnerships.<\/p>\n CFE\u2019s current challenges stem from its financial liabilities, inefficiencies, and uncertainty about the future of its partnerships with the private sector. The state power company relies heavily on government funding to maintain its operations. Between 2019 and 2024, Mexico transferred $23.5 billion to CFE\u2014equivalent to 1.4% of 2024 GDP. This sum accounts for 94% of the company\u2019s entire debt load of about $25.4 billion. Given the horizontal effect of power on productivity and competitiveness, there is a vast number of projects from the private sector waiting for certainty signals to be deployed.<\/p>\n CFE needs to clarify its goals to market players to ensure energy security, sufficiency, and sustainability, which are essential for growth-driving sectors like automotives, electronics, and new technologies, especially as the nearshoring narrative is likely to be strengthened through a next-generation free trade agreement with the U.S.<\/p>\n Rein in the deficit<\/strong><\/p>\n The massive social assistance programs and fiscal deficit represent the second time bomb in Sheinbaum\u2019s hands. It stems from government spending that increased from 4.2% to 6.7%<\/a> of GDP during AMLO\u2019s six-year term and that lacked adequate transparency and rational targeting. According to the Institute of Inequality Studies<\/a>\u00a0(INDESIG), the wealthiest 10% of the population captured almost 12% of social spending by 2024, up from 3.2% in 2018, while some poor families received less assistance<\/a> than before.<\/p>\n These twin pressures, along with increasing expenditure rigidities\u2014such as debt servicing (accounting for 17% of public income), pensions, transfers to states and municipalities, and undisclosed electoral spending\u2014converged in 2024\u2019s fiscal spree. As a result, Mexico\u2019s budgetary deficit skyrocketed from 2.1% of GDP when AMLO took office to a 36-year historic high<\/a> of 5.7% of GDP in 2024.<\/p>\n Faced with this inheritance, Sheinbaum promised aggressive fiscal consolidation, initially targeting a deficit reduction to 3.9% of GDP by 2025, followed by 3.2% in 2026. However, the 2026 budget confirmed the unfeasibility of this goal, as spending commitments have become increasingly rigid and locked in, leaving minimal room for such adjustment. The Finance Ministry now projects deficits of 4.4% for 2025\u2014excluding any of the nation\u2019s central operational transfers\u2014and 4.1% for 2026, delaying convergence to the long-term 2.5% target.<\/p>\n The $543 billion<\/a> 2026 budget details reveal why Sheinbaum\u2019s consolidation efforts will face structural hurdles this year and next. PEMEX continues to devour taxpayer money, with allocations expected to reach $14 billion in 2026\u2014nearly double the 2025 transfers. Furthermore, the budget is increasingly concentrated in areas such as subsidies, pensions, and debt servicing, which together account for almost 44% of total spending, up from 33% when AMLO took office.<\/p>\n This higher share crowds out budget from growth-enhancing public investment, which will remain significantly lower<\/a> (2.5% of GDP) than in other Latin American economies (3.5%) and the OECD average (3.8%).<\/p>\n Addressing the productivity issue<\/strong>\u2028\u2028<\/strong> Close inspection of recent years reveals a clear downturn after 2018\u2014even before the COVID shock\u2014with labor productivity declining further from already-stagnant levels.<\/p>\n This worsening underperformance reflects, among other constraints, multiple structural gaps across regions and sectors. Highly productive and trade-integrated northern states contrast sharply with underperforming southern regions, creating deep inequalities that limit national competitiveness.<\/p>\n A clear example is that despite Mexico becoming the leading import provider to the U.S., only 5% of SMEs<\/a> participate in foreign trade, revealing the economy\u2019s window of opportunity to harness its nearshoring potential into broad-based productivity gains.<\/p>\n The productivity challenge extends beyond infrastructure bottlenecks to encompass human capital deficits, regulatory obstacles, lack of cutting-edge technology adoption, and most recently, growing concerns about the rule of law and concentration of power.<\/p>\n For instance, Mexico faces a significant skills mismatch in the labor market. According to the Mexican Institute for Competitiveness<\/a> (IMCO), seven out of ten employers report difficulties filling jobs due to a lack of appropriate skills<\/a>, revealing the potential to transform scholarships and dual vocational programs into effective tools for workforce reskilling and expanding female labor participation.<\/p>\n The OECD estimates that a comprehensive supply-side reform agenda\u2014facilitating female employment, strengthening the rule of law, raising human capital, and increasing public investment\u2014could boost Mexico\u2019s GDP per capita by 15.6% over ten years, implying an average annual growth increase of 1.6 percentage points.<\/p>\n The opportunity before this government is to transform recently launched industrial strategies and newly created agencies\u2014Plan M\u00e9xico and the Agencia de Transformaci\u00f3n Digital<\/a>\u2014into genuine pathways for growth and prosperity, but this starts with creating a reliable business environment with clear general rules of the game so that specific projects materialize.<\/p>\n Addressing the issues discussed above would require steps that are politically sensitive. But they are essential to prevent the economy from sliding further behind its peers and potential, and to provide a credible path to restore Mexico\u2019s confidence, maximize investment opportunities, and promote medium-term growth.<\/p>\n Policymaking is often about choosing the \u201cleast bad\u201d option available, especially when fiscal room is shrinking and geoeconomics are extremely challenging. Sheinbaum faces such constraints as she enters her second year as president. While sweeping reforms remain desirable, a step-by-step approach could help regain trust and foster an enabling environment for better outcomes.<\/p>\n ABOUT THE AUTHOR Reading Time: 5 minutesRubio is professor of practice at the School of Public Policy at the London School of Economics (LSE) and senior advisor at McLarty Associates. Rubio is a former senator in Mexico and three times deputy minister: finance, foreign affairs and social development.<\/p>\n \t\t\tTags:<\/strong> Claudia Sheinbaum<\/a>, Economy<\/a>, Government<\/a>, Mexico<\/a>\t\t\t<\/p>\n
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Besides effectively navigating USMCA<\/a> negotiations with the U.S., which are likely to result in a revamped agreement that includes some form of sectoral customs union, the most critical challenge confronting Sheinbaum\u2019s administration is reversing the productivity stagnation that has prevented Mexico from realizing its full economic potential over the last three decades.<\/p>\n![](\"https:\/\/www.europesays.com\/ie\/wp-content\/uploads\/2025\/12\/Vanessa-Rubio.2.jpg\"\/)
Vanessa Rubio<\/p>\n