IMF Executive Board Concludes 2012 Article IV Consultation with Mexico

Public Information Notice (PIN) No. 12/133
November 28, 2012

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 2012 Article IV Consultation with Mexico is also available.

On November 19, 2012, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Mexico.1


Mexico’s growth has remained resilient, supported by both external and domestic demand. Since the crisis, Mexico has benefited from the relatively good performance of the U.S. manufacturing sector and achieved a strong recovery of its market share in that market. The gain in market share in the U.S. has come in part from improved relative unit labor costs (ULCs) and a continued flow of foreign direct investment into manufacturing, especially in the automotive sector. In turn, domestic demand has been supported by sustained growth in employment and credit. Inflationary pressures have remained contained thus far, despite the recent uptick in headline inflation associated with food prices. Amid persistent global financial uncertainty, the successive FCL arrangements have supported Mexico’s economic policies by providing a significant buffer against tail risks.

Growth in 2013 is envisaged to converge to 3½ percent, close to Mexico’s long-term potential growth rate. Despite a subdued U.S. recovery, domestic demand is envisaged to maintain its momentum, underpinned by sustained business and consumer confidence. High capacity utilization rates suggest that the recovery in fixed investment will continue, while favorable credit conditions and sustained employment growth should help underpin consumption. As food price shocks dissipate, headline inflation is expected to revert towards the inflation target.

Exchange rate flexibility has played a key shock-absorbing role, amid recurrent bouts of global risk aversion, but without major balance sheet or pass-through effects. In turn, sovereign and financial markets have remained stable, with interest rates near historical lows. Mexico’s recognition as a predictable and prudently managed economy, as well as its open capital and current accounts, market-friendly and transparent regulations for foreign investment, and deep and liquid financial markets, have bolstered large foreign investment in recent years.

Executive Board Assessment

Executive Directors commended the authorities’ sound rules based policy framework and skillful macroeconomic management, which have underpinned the strong recovery after the global crisis, improved the economy’s competitiveness and resilience to shocks, and bolstered foreign investment and growth. At the same time, Directors noted that downside risks prevail in the current uncertain external environment. They therefore welcomed the incoming administration’s commitment to maintaining prudent macroeconomic policies within the existing policy framework.

Directors supported the ongoing fiscal consolidation. They encouraged the return to a balanced budget under Mexico’s fiscal rule in 2013, which will help put the debt ratio on a downward path and restore fiscal buffers. To this end, revenue mobilization efforts are needed to raise the revenue to GDP ratio from its relatively low level, reduce the dependence on oil revenue, and avoid excessive compression of public investment. Fiscal reforms will also be needed to address pressures on the budget from population aging and declining oil revenues as a percent of GDP. Directors welcomed recent legislation to improve the reporting of sub national government accounts, which will be key to reinforcing fiscal discipline.

Directors agreed that the current accommodative stance of monetary policy has helped sustain the ongoing recovery in the face of fiscal consolidation. The task ahead is to determine the right monetary policy course given cyclical conditions and global headwinds. Recent supply shocks, which caused inflation to rise above the target range, further warrant central bank vigilance. Directors stressed that communicating the appropriate stance of monetary policy in the presence of such shocks is essential to maintain central bank credibility and keep inflation expectations anchored.

Directors agreed that the flexible exchange rate will continue to play a key role in buffering external shocks. They supported limited foreign exchange market intervention through a transparent and rules based mechanism. They took note of staff’s conclusion that the real effective exchange rate is consistent with fundamentals and desirable policies. Directors also welcomed the authorities’ monitoring of potential cross border spillovers, noting that a surge in global risk aversion could affect Mexico. They agreed that the Flexible Credit Line arrangement with the Fund has provided significant insurance against global downside risks.

Directors noted that Mexico’s financial sector remains sound and resilient. Nevertheless, they encouraged further effort to strengthen the regulatory and supervisory framework and reduce concentration in banks’ loan portfolios. They also urged stepped up efforts to implement the recommendations under the Financial Sector Assessment Program, and welcomed the close monitoring of lending to sub national governments.

Directors emphasized that boosting Mexico’s growth potential will require structural reforms to increase productivity and investment. They welcomed the recently approved labor reform, and underscored the importance of reforms to improve the quality of education, enhance competition, facilitate access to credit by small and medium sized enterprises, and strengthen domestic security.

Mexico: Selected Economic and Financial Indicators 1/
  2008 2009 2010 2011 2012 2/
(Annual percentage changes, unless otherwise indicated)

National accounts and prices


Real GDP

1.2 -6.0 5.6 3.9 3.8

Real GDP per capita 3/

-0.4 -7.5 4.0 2.5 2.9

Gross domestic investment (in percent of GDP)

26.8 23.8 24.0 25.0 24.9

Gross domestic savings (in percent of GDP)

25.3 23.2 23.6 24.2 24.0

Consumer price index (period average)

5.1 5.3 4.2 3.4 4.1

External sector


Exports, f.o.b.

7.2 -21.2 29.9 17.1 7.4

Imports, f.o.b.

9.5 -24.0 28.6 16.4 7.0

External current account balance (in percent of GDP)

-1.6 -0.6 -0.4 -1.0 -1.0

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

7.5 5.4 22.8 28.9 21.0

Outstanding external debt (in percent of GDP)

18.6 22.0 23.9 24.3 27.4

Nonfinancial public sector (in percent of GDP)


Government Revenue

23.5 23.6 22.6 22.8 23.1

Government Expenditure

23.6 25.9 25.5 25.3 25.4

Augmented overall balance

-1.1 -4.7 -4.3 -3.4 -2.6

Money and credit


Bank credit to the non-financial private sector (percent growth)

13.5 -1.0 10.0 17.2 15.9

Broad money (M4a)

16.8 6.1 12.0 15.7 15.3

Sources: National Institute of Statistics and Geography; Bank of Mexico; Secretariat of Finance and Public Credit; and IMF staff estimates.

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

2/ Staff projections.

3/ IMF staff estimates.

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:


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