IMF Executive Board Concludes 2011 Article IV Consultation with Mexico

Public Information Notice (PIN) No. 11/111
August 8, 2011

Public Information Notices (PINs) form part of the IMF's efforts to promote transparency of the IMF's views and analysis of economic developments and policies. With the consent of the country (or countries) concerned, PINs are issued after Executive Board discussions of Article IV consultations with member countries, of its surveillance of developments at the regional level, of post-program monitoring, and of ex post assessments of member countries with longer-term program engagements. PINs are also issued after Executive Board discussions of general policy matters, unless otherwise decided by the Executive Board in a particular case. The staff report (use the free Adobe Acrobat Reader to view this pdf file) for the 2011 Article IV Consultation with Mexico is also available.

On July 27, 2011, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Mexico.1


Mexico has recovered rapidly from the fallout of the global crisis. After a sharp contraction in 2009, growth in Mexico picked up strongly in 2010, reaching 5.4 percent. Robust growth has brought output back to pre-crisis levels, with manufacturing exports leading the recovery and the rebound in domestic demand helping sustain the momentum. This rapid rebound in output has been underpinned by Mexico’s sound public and private sector balance sheets, strong prudential framework, and the effective countercyclical policy response, with the floating exchange rate providing also an important buffer to the fallout from the global crisis and supporting the recovery. The three successive Flexible Credit Line arrangements (currently with an access equivalent to US$73 billion) have backed the authorities’ macroeconomic strategy by providing a significant buffer against potential tail risks.

Strong growth is envisaged to continue this year and next, at about 4.5 and 4.1 percent respectively. The near term outlook is supported by the expected continued recovery in the U.S. and solid domestic demand growth in Mexico. In this context, inflation has remained benign, with headline and core inflation declining to the 3 percent target. With demand pressures still subdued and inflation expectations well-anchored, the central bank has maintained the policy rates at 4.5 percent (since mid-2009). The current account deficit is projected to widen moderately this year to 1 percent of Gross Domestic Product (GDP), and to 1.5 percent over the medium term.

Capital inflows have increased in 2010 and 2011, on the back of sizable flows to peso-denominated government securities. This has reflected Mexico’s improved outlook and its inclusion in the global bond index WGBI in 2010, which has attracted long-term institutional investors. In this context, the peso has appreciated by some 25 percent in real effective terms since the depth of the crisis, but still is somewhat below the pre-crisis levels. International reserves have increased by US$27 billion over the last 12 months, with gross reserves now at US$131 billion, mostly through the sale of oil revenues, with rules-based interventions playing only a limited role. The banking system continues to be liquid and well-capitalized, with funding mainly from domestic deposits. Private sector credit growth has picked up in line with the economic recovery, with household and corporate leverage ratios broadly stable.

Executive Board Assessment

Executive Directors commended the authorities for their strong rules-based policy framework, which has underpinned skillful macroeconomic stewardship and a rapid turnaround in activity. With the recovery expected to remain firm, a gradual withdrawal of the policy stimulus that takes due account of the significant global uncertainty is warranted in the near term. Directors noted that the main medium-term challenges for Mexico are to bolster its growth potential and address long-term fiscal challenges.

Directors supported the authorities’ fiscal consolidation plans, including returning to the balanced budget rule next year and lifting the ceiling on the accumulation of resources in the oil stabilization fund to save oil revenue windfalls. They welcomed the planned adjustment of gasoline prices to bring them gradually in line with international prices, while strengthening the social safety net to protect the most vulnerable. Directors encouraged further efforts to rebuild fiscal buffers over the medium term, particularly in view of population aging and the projected decline in oil revenues relative to GDP. This requires a combination of expenditure restraint and non-oil revenue mobilization, including at the sub national government level. Consideration should be given to adopting a structural budget rule to reduce policy pro-cyclicality, and broadening the coverage of fiscal accounts to include sub-national governments.

Directors supported the accommodative monetary policy stance, given contained inflationary pressures and well-anchored expectations. However, they noted the challenge of calibrating the policy settings in a way that balances domestic cyclical considerations against global uncertainties as fiscal consolidation is underway. Directors underscored the need for the authorities to remain vigilant and stand ready to take action as needed.

Directors agreed that Mexico’s flexible exchange rate has played an important role in absorbing external shocks and managing capital inflows. They took note of the authorities’ limited intervention through the transparent, rules-based mechanisms.

Directors welcomed the resilience of Mexico’s financial sector—the result of the authorities’ efforts to strengthen the regulatory and supervisory framework. They considered that financial supervision has been further bolstered by the establishment of the Financial Stability Council to monitor systemic risks and address potential vulnerabilities, and that Mexico is well placed to meet Basel III prudential standards ahead of schedule. Directors looked forward to a comprehensive review of progress in the forthcoming Financial Sector Assessment Program (FSAP) update.

Directors emphasized that ambitious structural reforms are crucial to increase productivity and promote investment. They welcomed steps to improve anti-trust regulations, and called for a comprehensive strategy to address the most pressing constraints and prioritize reform efforts. Key among them is to improve labor flexibility, access to credit for small- and medium-sized enterprises, and job opportunities in the formal sector. Enhancing the efficiency and governance of state energy companies is also a priority.

Directors underlined the importance of closely monitoring cross-border spillovers, noting that a surge in global risk aversion could affect Mexico despite its strong fundamentals. They continued to view the Flexible Credit Line arrangement as a useful insurance against potential global tail risks. In this context, some Directors saw a further build-up of international reserves as part of an exit strategy from the arrangement, while a few others considered Mexico’s reserve coverage to be adequate.

Mexico: Selected Economic and Financial Indicators 1/
  2005 2006 2007 2008 2009 2010
(Annual percentage changes, unless otherwise indicated)

National accounts and prices


Real GDP

3.2 5.2 3.2 1.2 -6.2 5.4

Real GDP per capita 2/

2.2 4.2 2.3 0.3 -6.9 4.4

Gross domestic investment (in percent of GDP)

24.4 26.3 26.5 26.8 23.5 25.0

Gross national savings (in percent of GDP)

23.8 25.7 25.7 25.5 22.8 24.4

Consumer price index (end period)

3.3 4.1 3.8 6.5 3.6 4.4

External sector


Exports, f.o.b.

14.0 16.7 8.8 7.2 -21.2 29.9

Imports, f.o.b.

12.7 15.4 10.1 9.5 -24.0 28.6

External current account balance (in percent of GDP)

-0.6 -0.5 -0.9 -1.5 -0.7 -0.5

Change in net international reserves (end of period, billions of U.S. dollars)

-7.2 1.0 -10.4 -7.4 -5.4 -22.8

Outstanding external debt (in percent of GDP)

20.4 17.8 18.7 18.2 21.8 23.1

Total debt service ratio 3/

24.5 14.2 7.5 6.8 6.7 4.8

(in percent of exports of goods, services, and transfers)


Nonfinancial public sector (in percent of GDP)


Augmented overall balance

-1.4 -1.3 -1.6 -1.4 -4.8 -4.1

Traditional overall balance

-0.1 0.1 0.0 -0.1 -2.3 -2.8

Gross augmented public sector debt

39.8 38.4 37.8 43.1 44.7 42.9

Net augmented public sector debt

35.2 32.4 31.1 35.6 39.1 39.3

Money and credit


Broad money (M4a)

14.8 13.0 11.2 16.8 5.9 12.1

Treasury bill rate (28-day CETES, in percent, annual average)

6.8 9.2 7.2 7.2 7.7 5.4

1/ Methodological differences mean that the figures in this table may differ from those published by the authorities.

2/ IMF staff estimates.

3/ Public and private sectors.

1 Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board. At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here:


Public Affairs    Media Relations
E-mail: E-mail:
Fax: 202-623-6220 Phone: 202-623-7100