Mexico's fuel subsidies expected to cost US$25.8bn by end-2022

Private economic studies center Ceesp has estimated that the Mexican government will spend some 535bn (US$25.8bn) pesos to subsidize gasoline prices this year.

According to the think tank, this level of expenditure would make it impossible for Mexico to fully cover the subsidies through the extra revenues being accrued thanks to higher international oil prices.

This is partly because, according to the finance ministry's economic policy documents, a significant portion of oil revenues will be used to cover public debt, while another will be directed towards normal public spending.

Mexico is subsidizing gasoline prices through an adjustment of the IESP tax on fuels, which has been reduced to zero and through direct subsidies established earlier this year as an extraordinary measure.

During a Monday webinar, Luis Guillermo Pineda Bernal, a commissioner at energy regulator CRE, said during the first six months of the year the government had spent 159bn pesos to fund IEPS, a 458% increase compared with the same period of 2021.

"This has been thanks to the price of oil. Since we are oil producers, it has given us additional funds and these have been used to cover IEPS payments, to keep prices from rising and producing more inflation," Pineda Bernal said.

"This is a stimulus that will not last forever and is costly for the country's finances. All parties present in the value chain should prepare for when the price of oil begins to stabilize ... [they] should have a very clear plan regarding how to react" to the subsidy being cut, he said.

The commissioner also added that the situation was especially dire for diesel, which is facing supply shortages and dwindling inventories.