IMF Executive Board Concludes 2019 Article IV Consultation with Mexico
IMF News, November 5, 2019
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- Published: November 5, 2019
Macroeconomic outlook and growth
- "The Mexican economy has continued to exhibit resilience in a complex environment, but growth has come to a standstill amid elevated policy uncertainty, tight monetary conditions, and budget under-execution."
- Growth projections:
- "Growth is expected to accelerate modestly in the near-term, reaching 0.4 percent in 2019."
- "It is projected to recover to 1.3 percent in 2020 on the back of strengthening consumption and despite continued weakness in investment."
- Inflation outlook:
- "Headline inflation is projected to remain around the central bank’s target of 3 percent."
- "Core inflation is expected to gradually decline from elevated levels amid still tight monetary policy."
Fiscal policy and public debt
- "Fiscal policy remains prudent."
- Recent performance:
- "The authorities adhered to their 2.5 percent of GDP fiscal deficit target in 2018 but are projected to narrowly miss the same target in 2019 due to a weak revenue performance."
- Medium-term framework:
- "The authorities’ current medium-term targets would keep debt broadly stable at around 55 percent of GDP."
- "However, in the absence of additional measures to raise revenues or reduce spending, a fiscal gap of 0.5–1.5 percent of GDP would emerge during 2020–24."
- Executive Board recommendations on fiscal policy:
- "More ambitious fiscal targets were necessary to put the public debt ratio on a downward path."
- "They underscored the need to increase non-oil tax revenues."
- Suggested measures include:
- "Strengthening revenue administration."
- "Rationalizing tax expenditures."
- "Raising subnational taxes."
- "Making the tax system more progressive."
- "Enhancing public expenditure efficiency."
- "Establishing a fiscal council to support the administration’s commitment to fiscal responsibility."
Pemex and state-owned enterprise risks
- "Directors urged the authorities to revise Pemex’s business plan to strengthen its financial position and reduce risks to the budget."
- Recommendations for Pemex:
- "Make progress in selling non-core assets."
- "Provide credible plans to reduce operating costs to strengthen profitability."
- "Increased cooperation with private firms could also bolster production and diversify risks."
Monetary policy and inflation
- "Monetary policy has started easing in the context of a widening negative output gap and declining inflation."
- Recent actions:
- "The central bank reduced the policy rate in two 25 basis point steps in August and September to 7.75 percent."
- "Meanwhile, it did not intervene in the market, which allowed the peso to adjust freely to shocks."
- Executive Board view:
- "While being mindful of risks, directors saw scope for easing of monetary policy, as long as inflation stays close to the target and inflation expectations remain anchored."
- "They commended the Banco de México’s continued efforts in improving its communication strategy."
- "They noted that exchange rate flexibility should remain a key absorber of shocks, foreign exchange intervention should be limited to incidences of disorderly market conditions."
External sector and financial stability
- "Mexico’s external position remains broadly consistent with medium-term fundamentals and desirable policy settings."
- Current account and reserves:
- "Staff projects the current account deficit to narrow this year and to widen modestly over the medium-term."
- "Gross international reserves" (table): 2015: 177.6; 2016: 178.0; 2017: 175.4; 2018: 176.4 (in billions of U.S. dollars).
- External debt and vulnerabilities:
- "Outstanding external debt (in percent of GDP)" (table): 2015: 35.6; 2016: 38.3; 2017: 37.7; 2018: 36.6; 2019: 37.4.
- "Foreign exchange reserves are adequate according to a range of indicators, while the FCL continues to provide an effective complement in reducing risks."
- "However, the strong presence of foreign investors leaves Mexico exposed to greater risks in terms of capital flow reversals and increased risk premia."
- Financial sector:
- "Financial sector supervision and regulation remain robust."
- "Directors noted that the financial sector remained sound and emphasized that resilience could be further enhanced by closing gaps in the regulatory and supervisory framework."
- "They welcomed efforts to boost financial sector competition and inclusion and considered that a multi-pronged strategy to further boost competition and inclusion should be a policy priority going forward."
Structural reforms and inclusion
- "Directors underscored that reinvigorating the structural reform agenda is an imperative to foster strong, sustainable and inclusive growth."
- Policy priorities highlighted by Directors:
- "Reduce corruption, labor informality, and enhance the rule of law by strengthening the AML/CFT framework and implementing the National Anti-Corruption System (NACS)."
- "Lowering participation barriers for women and removing constraints to trade in services could narrow the gender gap and boost activity."
- "Labor informality could be addressed by reducing entry costs, strengthening enforcement and replacing hiring and firing restrictions with an unemployment insurance scheme."
Executive Board Assessment (summary)
- "Executive Directors commended the authorities for the continued maintenance of a strong policy framework, which contributed to the resilience of the Mexican economy in the face of elevated uncertainty."
- Key Board messages:
- Need for "steadfast implementation of sound macroeconomic policies combined with an acceleration of structural policy reforms to foster strong, sustainable, and inclusive growth."
- Maintain fiscal discipline while adopting "more ambitious fiscal targets" and revenue measures.
- Encourage Pemex restructuring and private sector cooperation.
- Allow exchange rate flexibility and limit FX intervention to disorderly conditions.
- Continue efforts to enhance financial sector resilience, competition, and inclusion.
Mexico: Selected Economic, Financial Indicators (2015–2019)
- National accounts and prices (annual percentage changes, unless otherwise indicated):
- Real GDP: 2015: 3.3; 2016: 2.9; 2017: 2.1; 2018: 0.4; 2019: (Staff projections) [2019 value in table not explicitly listed as percent except earlier projection of 0.4 percent in text].
- GDP per capita in U.S. dollars 3/: 2015: 9,674; 2016: 8,816; 2017: 9,373; 2018: 9,786; 2019: 10,064.
- Gross domestic investment (in percent of GDP): 2015: 23.3; 2016: 23.8; 2017: 23.0; 2018: 22.7; 2019: 21.6.
- Gross domestic savings (in percent of GDP): 2015: 20.6; 2016: 21.5; 2017: 21.2; 2018: 20.9; 2019: 20.4.
- Consumer price index (end of period): 2015: 3.4; 2016: 6.8; 2017: 4.8; 2018: 3.1; 2019: (not given in table).
- External sector:
- Exports, f.o.b.: 2015: -4.1; 2016: -1.7; 2017: 9.5; 2018: 10.1; 2019: 2.2.
- Imports, f.o.b.: 2015: -1.2; 2016: -2.1; 2017: 8.6; 2018: 10.4; 2019: 1.2.
- External current account balance (in percent of GDP): 2015: -2.6; 2016: -2.2; 2017: -1.8; 2018: (not provided in table for 2018); 2019: (not provided).
- Gross international reserves (in billions of U.S. dollars): 2015: 177.6; 2016: 178.0; 2017: 175.4; 2018: 176.4.
- Outstanding external debt (in percent of GDP): 2015: 35.6; 2016: 38.3; 2017: 37.7; 2018: 36.6; 2019: 37.4.
- Nonfinancial public sector (in percent of GDP):
- Government Revenue: 2015: 23.5; 2016: 24.6; 2017: 24.7; 2018: 22.8.
- Government Expenditure: 2015: 27.5; 2016: 27.4; 2017: 25.7; 2018: 25.6.
- Augmented overall balance: 2015: -4.0; 2016: -2.8; 2017: -1.1.
- Money and credit:
- Financial system credit to the non-financial private sector: 2015: 14.8; 2016: 16.5; 2017: 10.8; 2018: 8.8; 2019: 6.9.
- Broad money (M2a): 2015: 12.2; 2016: 12.3; 2017: 11.2; 2018: 5.5; 2019: 5.1.
IMF Executive Board Concludes 2019 Article IV Consultation with Mexico (Press Release No. 19/397), November 5, 2019.
