{
  "title": "IMF Executive Board Concludes 2019 Article IV Consultation with Mexico",
  "publication": "IMF News, November 5, 2019",
  "sourceUrl": "https://www.imf.org/en/news/articles/2019/11/05/pr19397-mexico-imf-executive-board-concludes-2019-article-iv-consultation",
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  "summary": "\"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.\"",
  "publishDate": "2019-11-05",
  "sections": [
    {
      "heading": "Macroeconomic outlook and growth",
      "content": "- \"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.\"\n- Growth projections:\n  - \"Growth is expected to accelerate modestly in the near-term, reaching 0.4 percent in 2019.\"\n  - \"It is projected to recover to 1.3 percent in 2020 on the back of strengthening consumption and despite continued weakness in investment.\"\n- Inflation outlook:\n  - \"Headline inflation is projected to remain around the central bank’s target of 3 percent.\"\n  - \"Core inflation is expected to gradually decline from elevated levels amid still tight monetary policy.\""
    },
    {
      "heading": "Fiscal policy and public debt",
      "content": "- \"Fiscal policy remains prudent.\"\n- Recent performance:\n  - \"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.\"\n- Medium-term framework:\n  - \"The authorities’ current medium-term targets would keep debt broadly stable at around 55 percent of GDP.\"\n  - \"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.\"\n- Executive Board recommendations on fiscal policy:\n  - \"More ambitious fiscal targets were necessary to put the public debt ratio on a downward path.\"\n  - \"They underscored the need to increase non-oil tax revenues.\"\n  - Suggested measures include:\n    - \"Strengthening revenue administration.\"\n    - \"Rationalizing tax expenditures.\"\n    - \"Raising subnational taxes.\"\n    - \"Making the tax system more progressive.\"\n    - \"Enhancing public expenditure efficiency.\"\n    - \"Establishing a fiscal council to support the administration’s commitment to fiscal responsibility.\""
    },
    {
      "heading": "Pemex and state-owned enterprise risks",
      "content": "- \"Directors urged the authorities to revise Pemex’s business plan to strengthen its financial position and reduce risks to the budget.\"\n- Recommendations for Pemex:\n  - \"Make progress in selling non-core assets.\"\n  - \"Provide credible plans to reduce operating costs to strengthen profitability.\"\n  - \"Increased cooperation with private firms could also bolster production and diversify risks.\""
    },
    {
      "heading": "Monetary policy and inflation",
      "content": "- \"Monetary policy has started easing in the context of a widening negative output gap and declining inflation.\"\n- Recent actions:\n  - \"The central bank reduced the policy rate in two 25 basis point steps in August and September to 7.75 percent.\"\n  - \"Meanwhile, it did not intervene in the market, which allowed the peso to adjust freely to shocks.\"\n- Executive Board view:\n  - \"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.\"\n  - \"They commended the Banco de México’s continued efforts in improving its communication strategy.\"\n  - \"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.\""
    },
    {
      "heading": "External sector and financial stability",
      "content": "- \"Mexico’s external position remains broadly consistent with medium-term fundamentals and desirable policy settings.\"\n- Current account and reserves:\n  - \"Staff projects the current account deficit to narrow this year and to widen modestly over the medium-term.\"\n  - \"Gross international reserves\" (table): 2015: 177.6; 2016: 178.0; 2017: 175.4; 2018: 176.4 (in billions of U.S. dollars).\n- External debt and vulnerabilities:\n  - \"Outstanding external debt (in percent of GDP)\" (table): 2015: 35.6; 2016: 38.3; 2017: 37.7; 2018: 36.6; 2019: 37.4.\n  - \"Foreign exchange reserves are adequate according to a range of indicators, while the FCL continues to provide an effective complement in reducing risks.\"\n  - \"However, the strong presence of foreign investors leaves Mexico exposed to greater risks in terms of capital flow reversals and increased risk premia.\"\n- Financial sector:\n  - \"Financial sector supervision and regulation remain robust.\"\n  - \"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.\"\n  - \"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.\""
    },
    {
      "heading": "Structural reforms and inclusion",
      "content": "- \"Directors underscored that reinvigorating the structural reform agenda is an imperative to foster strong, sustainable and inclusive growth.\"\n- Policy priorities highlighted by Directors:\n  - \"Reduce corruption, labor informality, and enhance the rule of law by strengthening the AML/CFT framework and implementing the National Anti-Corruption System (NACS).\"\n  - \"Lowering participation barriers for women and removing constraints to trade in services could narrow the gender gap and boost activity.\"\n  - \"Labor informality could be addressed by reducing entry costs, strengthening enforcement and replacing hiring and firing restrictions with an unemployment insurance scheme.\""
    },
    {
      "heading": "Executive Board Assessment (summary)",
      "content": "- \"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.\"\n- Key Board messages:\n  - Need for \"steadfast implementation of sound macroeconomic policies combined with an acceleration of structural policy reforms to foster strong, sustainable, and inclusive growth.\"\n  - Maintain fiscal discipline while adopting \"more ambitious fiscal targets\" and revenue measures.\n  - Encourage Pemex restructuring and private sector cooperation.\n  - Allow exchange rate flexibility and limit FX intervention to disorderly conditions.\n  - Continue efforts to enhance financial sector resilience, competition, and inclusion."
    },
    {
      "heading": "Mexico: Selected Economic, Financial Indicators (2015–2019)",
      "content": "- National accounts and prices (annual percentage changes, unless otherwise indicated):\n  - 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].\n  - GDP per capita in U.S. dollars 3/: 2015: 9,674; 2016: 8,816; 2017: 9,373; 2018: 9,786; 2019: 10,064.\n  - Gross domestic investment (in percent of GDP): 2015: 23.3; 2016: 23.8; 2017: 23.0; 2018: 22.7; 2019: 21.6.\n  - Gross domestic savings (in percent of GDP): 2015: 20.6; 2016: 21.5; 2017: 21.2; 2018: 20.9; 2019: 20.4.\n  - Consumer price index (end of period): 2015: 3.4; 2016: 6.8; 2017: 4.8; 2018: 3.1; 2019: (not given in table).\n- External sector:\n  - Exports, f.o.b.: 2015: -4.1; 2016: -1.7; 2017: 9.5; 2018: 10.1; 2019: 2.2.\n  - Imports, f.o.b.: 2015: -1.2; 2016: -2.1; 2017: 8.6; 2018: 10.4; 2019: 1.2.\n  - 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).\n  - Gross international reserves (in billions of U.S. dollars): 2015: 177.6; 2016: 178.0; 2017: 175.4; 2018: 176.4.\n  - Outstanding external debt (in percent of GDP): 2015: 35.6; 2016: 38.3; 2017: 37.7; 2018: 36.6; 2019: 37.4.\n- Nonfinancial public sector (in percent of GDP):\n  - Government Revenue: 2015: 23.5; 2016: 24.6; 2017: 24.7; 2018: 22.8.\n  - Government Expenditure: 2015: 27.5; 2016: 27.4; 2017: 25.7; 2018: 25.6.\n  - Augmented overall balance: 2015: -4.0; 2016: -2.8; 2017: -1.1.\n- Money and credit:\n  - Financial system credit to the non-financial private sector: 2015: 14.8; 2016: 16.5; 2017: 10.8; 2018: 8.8; 2019: 6.9.\n  - Broad money (M2a): 2015: 12.2; 2016: 12.3; 2017: 11.2; 2018: 5.5; 2019: 5.1.\n\nIMF Executive Board Concludes 2019 Article IV Consultation with Mexico (Press Release No. 19/397), November 5, 2019.\n\n---\n\n\n References\n\n- https://www.imf.org/-/media/images/imf/bios/imfboard.jpg\n- The Executive Board\n- Mexico and the IMF\n- IMF Policy Advice -- A Factsheet\n- Press Releases\n- PRESS CENTER\n- http://www.imf.org/external/np/sec/misc/qualifiers.htm\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2019/11/05/pr19397-mexico-imf-executive-board-concludes-2019-article-iv-consultation"
    }
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    "Published: November 5, 2019",
    "\"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:",
    "Inflation outlook:",
    "\"Fiscal policy remains prudent.\"",
    "Recent performance:",
    "Medium-term framework:",
    "Executive Board recommendations on fiscal policy:",
    "\"Directors urged the authorities to revise Pemex’s business plan to strengthen its financial position and reduce risks to the budget.\"",
    "Recommendations for Pemex:",
    "\"Monetary policy has started easing in the context of a widening negative output gap and declining inflation.\"",
    "Recent actions:",
    "Executive Board view:",
    "\"Mexico’s external position remains broadly consistent with medium-term fundamentals and desirable policy settings.\"",
    "Current account and reserves:",
    "External debt and vulnerabilities:",
    "Financial sector:",
    "\"Directors underscored that reinvigorating the structural reform agenda is an imperative to foster strong, sustainable and inclusive growth.\"",
    "Policy priorities highlighted by Directors:",
    "\"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:",
    "National accounts and prices (annual percentage changes, unless otherwise indicated):",
    "External sector:",
    "Nonfinancial public sector (in percent of GDP):",
    "Money and credit:",
    "[https://www.imf.org/-/media/images/imf/bios/imfboard.jpg](https://www.imf.org/-/media/images/imf/bios/imfboard.jpg)",
    "[The Executive Board](https://www.imf.org/external/np/sec/memdir/eds.aspx)",
    "[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)",
    "[Press Releases](https://www.imf.org/en/news/searchnews)",
    "[PRESS CENTER](http://presscenter.imf.org/)",
    "[http://www.imf.org/external/np/sec/misc/qualifiers.htm](http://www.imf.org/external/np/sec/misc/qualifiers.htm)",
    "[https://www.imf.org/en/home](https://www.imf.org/en/home)"
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