{ "title": "Mexico: Staff Concluding Statement of the 2019 Article IV Mission", "publication": "IMF News, October 11, 2019", "sourceUrl": "https://www.imf.org/en/news/articles/2019/10/11/mcs101119-mexico-staff-concluding-statement-of-the-2019-article-iv-mission", "canonical": "https://www.imf.org/en/news/articles/2019/10/11/mcs101119-mexico-staff-concluding-statement-of-the-2019-article-iv-mission", "overlayPath": "/en/news/articles/2019/10/11/mcs101119-mexico-staff-concluding-statement-of-the-2019-article-iv-mission/index.md", "summary": "Findings", "publishDate": "2019-10-11", "sections": [ { "heading": "Context, outlook, and risks", "content": "- Findings\n - Strong fundamentals: commitment to fiscal prudence; monetary policy has brought inflation to target; robust financial sector supervision and regulation; flexible exchange rate aiding adjustment.\n - Growth has declined sharply; fiscal pressures mounting amid new policy priorities and commitment not to raise taxes during the first half of the administration’s term.\n - Productivity-enhancing reforms have largely stalled.\n- Projections\n - Growth: 0.4 percent in 2019; 1.3 percent in 2020.\n - Inflation: headline inflation at Banxico’s 3-percent target; core inflation expected to converge to it by mid-2020.\n- Risks\n - External downside risks: weaker-than-projected global growth; volatility in global financial markets; continued uncertainty about Mexico’s trade relations with the U.S.\n - Domestic downside risks: lower medium-term growth and investor reassessment of credit quality if commitment to fiscal prudence, strong institutions, and a favorable business environment weakens.\n - Specific corporate risk: a downgrade of Pemex to non-investment status by a second major rating agency could raise financing costs and cause spillovers to other corporations.\n - Upside: concrete steps to enhance good governance, rule of law, and structural reforms would boost growth." }, { "heading": "Fiscal policy and structural fiscal reforms", "content": "- Overall recommendation\n - Pursue a more growth-friendly and inclusive fiscal policy mix that puts debt on a downward path, notably by raising non-oil revenues and improving the efficiency of spending.\n- Fiscal stance and targets\n - Keeping the PSBR at 2.2-2.4 percent of GDP over the medium term would keep debt broadly stable at around 55 percent of GDP.\n - Staff view: while sustainable, more ambitious medium-term fiscal targets are needed to rebuild buffers and insure against downside risks and demographics-related spending pressures.\n- Fiscal gap and actions needed\n - Meeting announced fiscal targets requires closing an emerging fiscal gap of 0.5-1.5 percent of GDP during 2020-24 with concrete actions to safeguard fiscal credibility.\n- Revenue measures (priority: raise non-oil tax revenues and increase progressivity)\n - VAT: taxing (non-export related) food items at the standard 16 percent rate alone would boost revenues by some 1 percent of GDP; targeted benefits could offset the impact on the poor; an initially reduced rate could smooth transition.\n - Income taxes: rationalize inefficient and regressive tax expenditures and widen the PIT top bracket.\n - Excises: abolish the zero-floor reduction mechanism for excise rates that disproportionately benefits the rich.\n - Local taxes: reform property and vehicle registration taxes to allow reduction in central government transfers and encourage fiscal responsibility.\n - Border tax regime: abolish immediately or at least do not extend the temporary (for 2019 and 2020) special policy regime.\n - Tax administration: welcome abolition of the right to offset excess VAT credits against other taxes and strengthened sanctions; recommend a comprehensive strategy to tackle VAT non-compliance, address lack of a high-coverage audit process for VAT returns, and consider integrating income tax and social security administrations.\n- Expenditure efficiency (shift toward growth-friendly and inclusive mix)\n - Public investment: increase non-energy public investment in context of sustainable fiscal position and comprehensive infrastructure plan; strengthen public investment management consistent with the Public Investment Management Assessment.\n - Social protection: rationalize programs, improve targeting, reduce errors of inclusion/exclusion, reduce overlaps and duplications.\n - Wage bill: stricter standards and transparency in temporary personnel use; merit-based recruitment; centralized payroll system while maintaining pay competitiveness.\n - Education: audits to identify ghost workers and curb absenteeism; rebalance spending toward investment in equipment and facilities; improve early-childhood education and access in low-coverage regions.\n - Pension system: welcome reduction in management fees; consider increasing contribution rate for defined-contribution system (potentially by reducing Infonavit contributions); consider increasing effective retirement age; consolidate federal and local non-contributory pension pillars.\n - Health sector: seek efficiency gains by reducing administrative and insurance costs; target investment to rural and impoverished areas; improve portability of insurance and build compatible information infrastructure across sub-systems.\n - Public procurement: centralize procurement further and adopt a digital platform to yield savings and reduce corruption and bid rigging.\n- Pemex\n - Findings: Pemex’s financial situation is weak, debt is elevated, oil production had been dropping until very recently.\n - Concerns with current business plan: limits cooperation with private firms in upstream to service contracts; heavy investment in loss-making downstream business; lacks concrete ways to reduce operating costs.\n - Recommendation: reconsider business plan to improve profitability and provide budgetary relief; favor joint ventures with private sector as most promising way to replace reserves and increase production given fiscal pressures.\n- Fiscal framework\n - Recommended reforms:\n - Adopt a well-calibrated debt anchor.\n - Broaden coverage of the structural spending rule.\n - Define an adjustment path to return to target after a shock.\n - Significantly tighten triggers for the use of escape clause.\n - Create a non-partisan, adequately-sourced fiscal council with formal mandate to provide independent evaluation of fiscal policy.\n - Additional steps: put in place a modern medium-term budget framework and implement recommendations of the 2018 Fiscal Transparency Evaluation.\n - Note: new administration shares these views and intends to revamp the fiscal framework; mission stands ready to support." }, { "heading": "Monetary policy", "content": "- Findings and recommendations\n - Recent easing welcomed; scope to continue easing while inflation remains close to target and inflation expectations remain anchored, mindful of risks.\n - Banxico’s tight stance succeeded in bringing headline inflation back to the 3-percent target.\n - Recommendation: continue lowering the policy rate given a large negative output gap.\n- Communication and exchange rate\n - Communications: improvements have helped guide market expectations; urge concise communication and focus on external developments only as relevant to inflation trajectory.\n - Exchange rate flexibility: should remain key shock absorber; foreign exchange intervention should be limited to incidences of disorderly market conditions.\n - The FCL provides an additional buffer should downside risks materialize." }, { "heading": "Financial stability", "content": "- Regulatory and supervisory enhancements\n - Close gaps in framework in line with 2016 FSAP: increase operational independence, budget autonomy, and legal protection of banking and securities supervisor; integrate prudential supervision functions under one authority; enhance definitions of “common risk” and “related party”; expand resolution regime to cover financial holding companies and strengthen powers to require banks to improve resolvability.\n- Competition and inclusion\n - Continue efforts to boost financial competition and inclusion; multi-pronged strategic approach should be a priority amid weakening activity.\n - Priorities: boost competition and transparency in financial products; reduce cash usage; improve financial infrastructure particularly for SMEs.\n - Upcoming fintech secondary regulations should promote competition while preserving financial stability." }, { "heading": "Structural reforms", "content": "- Need to raise potential growth by reinvigorating reforms to boost growth, reduce poverty and inequality, and narrow regional disparities.\n- Key areas and recommendations\n - Combating corruption and money laundering: more effective enforcement and inter-agency cooperation; implement 2014 National Anti-Corruption Strategy; improve UIF follow-up by FGR; address lack of transparency of beneficial ownership via an inter-agency task force; concern about reduced budget allocations to sector regulators and autonomous entities such as the judicial branch, COFECE and CONEVAL.\n - Labor informality: strengthen enforcement; reinvigorate efforts to replace hiring and firing restrictions with an unemployment insurance scheme; reduce entry costs for formal firms by cutting procedural costs and time burdens.\n - Security: enhance effectiveness of law enforcement and judicial institutions to strengthen rule of law.\n - Gender gaps: lower participation barriers for mothers; expand child care and maternity/paternity benefits (current benefits well below OECD peers); concern over cancellation of subsidies for child care facilities replaced with direct transfers; promote financial inclusion of women as a pillar of upcoming initiatives.\n - Competition and product market regulation: remove barriers to trade in services, especially transportation and logistics; restart energy auctions and risk-sharing arrangements between Pemex and private firms.\n - Minimum wage: further adjustments should be very gradual to avoid short-term disruptions and adverse formal employment effects; recommend caution despite potential inequality-reducing benefits of increasing minimum-to-median wage ratio." }, { "heading": "Mission facts", "content": "- Team leader: Costas Christou.\n- Visit: Mexico City during September 19–30, 2019.\n- Meetings: Bank of Mexico Governor Diaz de Leon; Secretary of Finance and Public Credit Herrera; Energy Secretary Nahle; other senior officials; representatives of the business community; other IFIs; academics.\n\nIMF staff concluding statement, October 11, 2019.\n\n---\n\n\n References\n\n- Mexico and the IMF\n- IMF Policy Advice -- A Factsheet\n- Mission Concluding Statements\n- PRESS CENTER\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2019/10/11/mcs101119-mexico-staff-concluding-statement-of-the-2019-article-iv-mission" } ], "bullets": [ "[Markdown version](/en/news/articles/2019/10/11/mcs101119-mexico-staff-concluding-statement-of-the-2019-article-iv-mission/index.md)", "[Structured JSON version](/en/news/articles/2019/10/11/mcs101119-mexico-staff-concluding-statement-of-the-2019-article-iv-mission/index.json)", "[Bundle manifest](/en/news/articles/2019/10/11/mcs101119-mexico-staff-concluding-statement-of-the-2019-article-iv-mission/bundle-manifest.json)", "Published: October 11, 2019", "Findings", "Projections", "Risks", "Overall recommendation", "Fiscal stance and targets", "Fiscal gap and actions needed", "Revenue measures (priority: raise non-oil tax revenues and increase progressivity)", "Expenditure efficiency (shift toward growth-friendly and inclusive mix)", "Pemex", "Fiscal framework", "Findings and recommendations", "Communication and exchange rate", "Regulatory and supervisory enhancements", "Competition and inclusion", "Need to raise potential growth by reinvigorating reforms to boost growth, reduce poverty and inequality, and narrow regional disparities.", "Key areas and recommendations", "Team leader: Costas Christou.", "Visit: Mexico City during September 19–30, 2019.", "Meetings: Bank of Mexico Governor Diaz de Leon; Secretary of Finance and Public Credit Herrera; Energy Secretary Nahle; other senior officials; representatives of the business community; other IFIs; academics.", "[Mexico and the IMF](http://www.imf.org/external/country/MEX/index.htm)", "[IMF Policy Advice -- A Factsheet](https://www.imf.org/en/about/factsheets/imf-surveillance)", "[Mission Concluding Statements](https://www.imf.org/en/news/searchnews)", "[PRESS CENTER](http://presscenter.imf.org/)", "[https://www.imf.org/en/home](https://www.imf.org/en/home)" ], "alternates": { "markdown": "/en/news/articles/2019/10/11/mcs101119-mexico-staff-concluding-statement-of-the-2019-article-iv-mission/index.md", "json": "/en/news/articles/2019/10/11/mcs101119-mexico-staff-concluding-statement-of-the-2019-article-iv-mission/index.json", "bundleManifest": "/en/news/articles/2019/10/11/mcs101119-mexico-staff-concluding-statement-of-the-2019-article-iv-mission/bundle-manifest.json" }, "generatedAtUtc": "2026-09-25T23:08:02.449Z" }