IMF Executive Board Concludes 2023 Article IV Consultation with Mexico

IMF News, October 31, 2023

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On October 30, The Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Mexico.
Press Release No. 23/370
Date of publication: October 31, 2023
Unclassified contact: MEDIA RELATIONS, PRESS OFFICER: Maria Candia Romano, Phone: +1 202 623-7100, Email: MEDIA@IMF.org

The Mexican economy is in the midst of a broad-based expansion.
Growth projections:
- Real GDP (% change): 2022: 3.9; 2023: 3.2; 2024: 2.1; 2025: 1.5
Growth drivers in 2023: robust private consumption and investment, notable strength in services and construction sector, and in auto production.
Employment:
- Unemployment rate, period average (%): 2022: 3.3; 2023: 2.9; 2024: 3.1; 2025: 3.4
The unemployment rate has fallen to 2.7 percent (statement in text).

Disinflation facilitated by proactive monetary policy and a decline in global commodity prices.
Consumer prices:
- Consumer prices, end of period (%): 2022: 7.8; 2023: 4.5; 2024: 3
- Consumer prices, period average (%): 2022: 7.9; 2023: 5.5; 2024: 3.8
Banxico policy rate:
- Banxico has held its policy rate at 11.25 percent since March 2023 and stated it will keep rate on hold for an extended period.
Real rate characterization: With inflation and long-run inflation expectations in check, the real rate is now firmly in contractionary territory.
Director guidance: caution in reducing the policy rate before inflation is on a clearer downward path toward the target; continue to enhance communication practices; maintain flexible exchange rate as key adjustment tool.

Authorities are projected to meet their 2023 fiscal targets.
Fiscal projections and outcomes:
- Revenue and grants (% GDP): 2022: 24.2; 2023: 23.8; 2024: 23.7
- Expenditure (% GDP): 2022: 28.5; 2023: 27.7; 2024: 29.1; 2025: 26.3
- Overall fiscal balance (% GDP): 2022: -4.3; 2023: -3.9; 2024: -5.4; 2025: -2.6
- Gross public sector debt (% GDP): 2022: 54.1; 2023: 52.7; 2024: 54.7; 2025: 55.1
2023 fiscal dynamics: More restrained capital spending is expected to more than offset the lower tax revenue, especially on the VAT, yielding an overall deficit of 3.9 percent of GDP.
Staff outcome: Decline of gross public sector debt (by staff’s definition) to 52.7 percent of GDP in 2023.
Director advice and concerns:
- Cautioned against an overly procyclical near-term fiscal stance.
- Decisive measures will be needed in 2025 and beyond to preserve fiscal sustainability over the medium term.
- Emphasized need to boost non-oil revenues, which remain below Latin American and OECD peers.
- Saw scope to reform the medium-term fiscal framework to increase its flexibility and credibility.
- Emphasized greater transparency in fiscal reporting; welcomed transparent recording of support to Pemex in 2024 budget while emphasizing ensuring the company’s commercial viability.

Current account and external indicators:
- Current account balance (% GDP): 2022: -1.2; 2023: -1.5; 2024: -1.4; 2025: -1.1
- Foreign direct investment (% GDP): 2022: 1.4
- Gross international reserves (US$ billions): 2022: 201.1; 2023: 212.3; 2024: 224.5; 2025: 234.4
- In months of next year's imports of goods and services: 3.5 (2022)
- Total external debt (% GDP): 2022: 31.1; 2023: 26.1; 2024: 24.9; 2025: 25.1
- REER (% change): 2022: 5.3; 2023: …
External pressures: Higher freight costs, strong domestic demand, and adverse price developments increased the current account deficit slightly in 2022 to 1.2 percent of GDP. Higher demand-driven imports are expected to widen the deficit further in 2023 to 1.5 percent of GDP.
International reserves remain at comfortable levels.

Banking sector health:
- As of May 2023, nonperforming loans are close to record lows at 2.2 percent of total loans.
- Banking sector has strong capital positions.
Directors’ priorities:
- Financial system remains resilient with high capital and liquidity buffers.
- Continue implementation of key policy recommendations of the 2022 Financial Sector Assessment Program.
- Address outstanding gaps in the AML/CFT framework and enhance collaboration between various AML/CFT agencies and anti-corruption bodies.
- Mexico volunteered for an assessment of the transnational aspects of corruption.

Directors emphasized supply-side reforms to improve potential growth and raise living standards, including by taking advantage of the diversification of global supply chains.
Specific reform priorities:
- Boost female labor force participation and remove legal impediments to female economic empowerment, given significant gender gaps.
- Better tackle corruption and crime.
- Expand financial inclusion.
- Improve infrastructure and streamline regulations.
Climate and energy recommendations:
- A comprehensive and well-sequenced climate change strategy can provide more durable sources of energy.
- Given long-term risk of reduced global demand for hydrocarbons, encouraged switching to low carbon and renewable sources of generation, including by considering increasing the price of carbon.

Population (millions, 2021): 130.0
GDP per capita (U.S. dollars, 2022): 11,279.2
Quota (SDR, millions): 8,912.70
Poverty headcount ratio (% of population, 2022) 1/: 36.3
Main export products: cars and car parts, electronics, crude oil
Main import products: cars and car parts, electronics, refined petroleum
Key export markets: United States, EU and Canada
Key import markets: United States, China, EU
Monetary and credit:
- Broad money (% change): 2022: 7.3; 2023: 8.0
- Credit to non-financial private sector (% change) 3/: 2022: 10.9; 2023: 7.1; 2024: 6.4; 2025: 3.6
- 1-month Treasury bill yield (in percent): 2022: 7.6; 2023: N.A.

Executive Directors agreed with the thrust of the staff appraisal.
Directors noted that the authorities’ very strong policies and policy frameworks were instrumental in restraining public debt and containing inflation, while achieving a broad-based economic expansion supported by robust private consumption and investment.
Directors stressed that securing sustainable and inclusive growth will require continuing with a sound macroeconomic policy mix, accompanied by a broad set of structural reforms to address bottlenecks and make the economy more climate resilient.
It is expected that the next Article IV Consultation with Mexico will be held on the standard 12-month cycle.

IMF Executive Board Concludes 2023 Article IV Consultation with Mexico — Press Release No. 23/370 (October 31, 2023).