IMF Executive Board Concludes 2020 Article IV Consultation with Mexico
IMF News, November 4, 2020
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- Published: November 4, 2020
Pandemic impact and macroeconomic outlook
- Over 85,000 lives have been lost (official statistics).
- About 12 million workers lost their jobs; around 4 million have not returned to the workforce.
- The share of the population in working poverty jumped from 36 to 48 percent, as of June.
- Output is expected to decline by 9 percent in 2020, described as the steepest contraction since the Great Depression.
- Inflation has edged up due to exchange rate passthrough and supply disruptions, and is projected to decline gradually as domestic demand remains suppressed by labor market dislocation, wealth effects, and concerns about the path of the pandemic.
- Economic recovery is expected to be modest and gradual, with large social and economic costs likely to persist amid considerable risks and uncertainty over the evolution of the pandemic.
Policy response to the crisis
- Fiscal and social measures:
- Increased health spending.
- Support for households and firms through loans, expenditure reallocations, front-loaded social pension payments to the elderly and disabled, accelerated procurement processes, and VAT refunds.
- Tax policy measures and tax administration measures implemented to increase tax collections.
- Monetary and financial measures:
- Monetary policy cuts totaling 400 basis points, reducing the policy rate to 4.25 percent.
- Central bank expanded several facilities with access up to 3.3 percent of GDP to support market functioning and credit provision.
- Flexible exchange rate facilitated absorption of shocks.
- Comfortable international reserves, access to the U.S. Federal Reserve swap line, and the IMF’s Flexible Credit Line have bolstered the ability to withstand external stress.
Executive Board assessment and recommendations
- General assessment:
- Directors commended timely actions to mitigate health and economic impacts and noted very strong policies and institutional policy frameworks.
- Emphasized importance of limiting pandemic damage, promoting robust recovery, and pursuing strong, durable, and inclusive growth.
- Continued close engagement and dialogue between the authorities and IMF staff is important.
- Fiscal policy guidance:
- Most Directors recommended a further temporary, well-communicated, and targeted near-term fiscal support, considering country circumstances and safeguarding medium-term fiscal sustainability.
- Some Directors cautioned that limited fiscal support could lead to greater pressure on public finances through a deeper economic contraction.
- A few Directors viewed the authorities’ stance as prudent given pandemic uncertainty.
- Directors generally recommended announcement of a credible medium-term tax reform—to be implemented once the recovery is underway—to bolster space for near-term support, close fiscal gaps, lower public debt, and finance needed investment and social spending. Several Directors suggested announcing tax reform plans once a firm recovery is in place.
- Revenue and public spending:
- Directors welcomed recent steps to improve tax administration and recommended broadening the tax base, raising subnational taxes, and reducing VAT gaps while strengthening social safety nets.
- Recommended further reprioritizing public spending to promote inclusive growth by strengthening social protection and increasing public investment.
- State-owned enterprises, pensions, and labor market:
- Welcomed authorities’ pension reform proposal while urging complementary measures to mitigate labor market informality.
- Urged authorities to revisit Pemex’s business strategy and further reform its governance.
- Encouraged consideration of a nationwide unemployment benefits system.
- Monetary and financial sector stance:
- Directors considered central bank actions supportive of market functioning and the economy.
- Several Directors saw scope for further monetary policy support while safeguarding financial stability.
- Many other Directors supported a more cautious approach given increased inflation and potential tradeoffs.
- Recommended continued close monitoring of risks in the banking sector and upholding minimum regulatory and supervisory standards while using the inherent flexibility of the framework.
- Structural reforms:
- Emphasized steadfast implementation of structural reforms to improve investment and productivity and reap benefits of the USMCA trade agreement.
- Urged forceful action to tackle labor market informality, advance governance and AML/CFT efforts, enhance public investment efficiency, improve access to credit, and leverage private involvement in the energy sector.
Key economic and financial indicators (2016–2020; annual percentage changes unless otherwise indicated)
- Real GDP:
- 2016: 2.6
- 2017: 2.1
- 2018: 2.2
- 2019: -0.1
- 2020: -9.0
- GDP per capita in U.S. dollars (IMF staff estimates):
- 2016: 8,789
- 2017: 9,343
- 2018: 9,753
- 2019: 10,024
- 2020: 8,141
- Gross domestic investment (in percent of GDP):
- 2016: 23.6
- 2017: 22.9
- 2018: 22.7
- 2019: 21.1
- 2020: 19.3
- Gross domestic savings (in percent of GDP):
- 2016: 21.4
- 2017: 20.7
- 2018: 20.5
- Consumer price index (end of period):
- 2016: 3.4
- 2017: 6.8
- 2018: 4.8
- 2019: 2.8
- 2020: 3.7
- External sector:
- Exports, f.o.b.:
- 2016: -1.7
- 2017: 9.5
- 2018: 10.1
- 2019: -12.9
- Imports, f.o.b.:
- 2016: -2.1
- 2017: 8.6
- 2018: 10.4
- 2019: -1.9
- 2020: -14.3
- External current account balance (in percent of GDP):
- 2016: -2.3
- 2017: -1.8
- 2018: -0.3
- 2019: 1.2
- Gross international reserves (in billions of U.S. dollars):
- 2016: 178.0
- 2017: 175.4
- 2018: 176.4
- 2019: 183.0
- 2020: 190.4
- Outstanding external debt (in percent of GDP):
- 2016: 38.3
- 2017: 37.7
- 2018: 36.6
- 2019: 45.5
- Nonfinancial public sector (in percent of GDP):
- Government Revenue:
- 2016: 24.6
- 2017: 23.5
- 2018: 23.8
- 2019: 24.3
- Government Expenditure:
- 2016: 27.4
- 2017: 25.7
- 2018: 26.2
- 2019: 30.1
- Augmented overall balance:
- 2016: -2.8
- 2017: -1.1
- 2018: -2.2
- 2019: -5.8
- Money and credit:
- Financial system credit to the non-financial private sector:
- 2016: 16.5
- 2017: 10.8
- 2018: 8.8
- 2019: 3.0
- 2020: -1.4
- Broad money (M2a):
- 2016: 12.3
- 2017: 11.2
- 2018: 5.3
- 2019: 8.3
IMF Executive Board Concludes 2020 Article IV Consultation with Mexico — November 4, 2020.
