{ "title": "Mexico: IMF Staff Concluding Statement of the 2020 Article IV Mission", "publication": "IMF News, October 6, 2020", "sourceUrl": "https://www.imf.org/en/news/articles/2020/10/06/mcs100620-mexico-imf-staff-concluding-statement-of-the-2020-article-iv-mission", "canonical": "https://www.imf.org/en/news/articles/2020/10/06/mcs100620-mexico-imf-staff-concluding-statement-of-the-2020-article-iv-mission", "overlayPath": "/en/news/articles/2020/10/06/mcs100620-mexico-imf-staff-concluding-statement-of-the-2020-article-iv-mission/index.md", "summary": "Over 75,000 lives have been lost; unofficial estimates are notably higher.", "publishDate": "2020-10-06", "sections": [ { "heading": "Human, social, and labor impacts of Covid-19", "content": "- Over 75,000 lives have been lost; unofficial estimates are notably higher.\n- Of around 12 million workers who lost their jobs, most from the informal sector, over 4 million remain outside the workforce.\n- The share of the population in working poverty jumped from 36 to 48 percent.\n- The shock has disproportionately burdened the poor and the vulnerable." }, { "heading": "Macroeconomic outlook and risks", "content": "- Projected output growth: –9 percent in 2020, 3½ percent in 2021, and close to 2 percent thereafter.\n- Employment, income, and poverty will take several years to return to pre-pandemic levels.\n- Risks tilted to the downside: possible Covid-19 resurgence domestically; prolonged labor market disruption; renewed global financial volatility; lower oil prices; adverse growth in key trading partners.\n- Upside scenarios: early vaccine availability; advanced-economy buoyancy from large policy interventions; faster re-absorption of workers into the labor force." }, { "heading": "Near-term fiscal support and medium-term fiscal sustainability", "content": "- Authorities increased health spending and direct budget support by 0.7 percent of GDP; G20 emerging markets provided over 3 percent of GDP support on average.\n- Additional support provided via loans, reallocated spending, front-loaded social pension payments, accelerated procurement, and VAT refunds.\n- Draft 2021 budget maintains tight settings aimed at limiting new debt issuance; no concrete medium-term tax reform plans yet.\n- Stabilization and trust fund buffers expected to be drawn down substantially.\n- Preliminary projections (based on more prudent nominal growth, oil production and tax buoyancy assumptions):\n - Primary and overall PSBR of 5.8 percent of GDP in 2020.\n - Fiscal gaps of 1¼–2 percent of GDP in 2021 and beyond, relative to authorities’ targets.\n - Gross public debt projected to stabilize near 65 percent of GDP, assuming fiscal gaps are closed.\n- Recommendation: provide higher temporary near-term fiscal support of 2½–3½ percent of GDP (relative to pre-pandemic policy settings) to stem activity decline and rising poverty." }, { "heading": "Priorities for near-term fiscal support (targeted measures)", "content": "- Health spending: fully accommodate pandemic-related health care spending so cost and access are not barriers to combating the pandemic.\n- Households: increase coverage of social safety net programs to include readily eligible individuals not receiving benefits, those likely to fall into poverty due to the pandemic, and informal workers in hard-hit sectors.\n- Businesses: beyond loans for micro and small firms, provide liquidity support (e.g., tax and social security contribution deferrals) and cost-reduction assistance (e.g., wage subsidies) to viable firms." }, { "heading": "Medium-term tax reform to expand fiscal space", "content": "- A credible medium-term tax reform could raise revenues by 3–4 percent of GDP and narrow the tax collection gap with peers.\n- Income taxes: broaden the base by rationalizing inefficient and regressive tax expenditures and reducing the threshold for the top income tax bracket.\n- Property taxes: raise subnational property and vehicle registration taxes; consider a federal-level agency to update the cadaster and coordinate subnational policy.\n- VAT: eliminate domestic zero-rate items (apart from a few key foodstuffs) and curtail exemptions; strengthen social safety nets to mitigate distributional concerns; improve tax administration (organizational structure, high-coverage VAT audits, electronic means, stronger sanctions). Not renewing the border tax regime (temporary for 2019–20) would limit distortions and raise collections.\n- Gasoline excises: reconsider the policy of guaranteeing cumulative retail price growth below inflation, which disproportionately helps the well off." }, { "heading": "Reprioritization of public spending", "content": "- Social protection: expand safety nets temporarily and target them; medium-term reforms to introduce a nation-wide unemployment benefits system; reduce overlaps, duplications, and leakages to increase coverage cost-effectively.\n- Pensions: recent reform proposal can improve adequacy and sustainability; complementary reforms needed to tackle informality and increase contribution densities.\n- Public investment: non-Pemex capital spending at about 1½ percent of GDP in 2019 is very low; higher physical and human capital spending needed to improve productivity, inclusion, and meet the Sustainable Development Goal in healthcare." }, { "heading": "Pemex and public resources", "content": "- Pemex’s widening losses crowd out resources for essential spending.\n- Recommendations: focus production on profitable fields; sell non-core assets; curb plans to increase refining output at a loss; postpone new refinery plans until profitable; partner with private firms for capital and know-how.\n- Conditional on business strategy and governance changes, procurement and oversight reforms, consideration could be given to fiscal support to ease Pemex’s high financing needs." }, { "heading": "Monetary policy and financial sector resilience", "content": "- The central bank cut rates totaling 400 basis points in the easing cycle that commenced last year and accelerated after the pandemic; expanded/established facilities with access up to 3.3 percent of GDP to support market functioning and credit.\n- Use of facilities has been limited, partly due to lower loan guarantees and delays in making one facility available.\n- Flexible exchange rate, comfortable international reserves, access to the U.S. Federal Reserve swap line, and the IMF’s Flexible Credit Line have bolstered external resilience.\n- Inflation and expectations: 1-year ahead inflation expectations remain well anchored; recent price pressures reflect transitory factors (peso passthrough and supply shocks) offset by sustained demand weakness.\n- Recommendation: consider cutting rates further, given historic drops in output and labor dislocations, while monitoring inflation expectations.\n- Lower rates likely to reduce debt servicing pressures, possibly boost investment, and increase attractiveness of central bank credit facilities, though tradeoffs include capital outflow and peso depreciation risks.\n- Consider an independent review of the monetary policy framework to explore inflation determinants, measures, and the policy toolkit." }, { "heading": "Banking sector soundness and regulatory recommendations", "content": "- Banking sector capitalization: 16.5 percent.\n- Nonperforming loan ratio: 2.1 percent.\n- Recommendations:\n - Continue upholding minimum regulatory and supervisory standards and use flexibility within the framework.\n - Ensure loan restructuring regulations allow reclassification of distressed loans and recognition of losses.\n - Limit capital distributions (e.g., suspend dividends) until recovery is clear.\n - Consider closing regulatory and supervisory gaps: enhance definitions of “common risk” and “related party” exposures, improve resolution regime for financial holding companies, strengthen power to request pre-emptive actions, and ensure adequate access to funding for the deposit insurance and resolution authority." }, { "heading": "Structural reforms to support recovery and boost investment", "content": "- Policy uncertainty from domestic reform reversals can impede recovery; USMCA reduced trade-related uncertainty but domestic reversals (e.g., in energy sector, cancelation of large private investments) continue to weaken investment prospects.\n- Recommended reforms to tackle long-standing impediments:\n - Comprehensive approach to informality, including passive and active labor market reforms to complement pension reform (see IMF WP/19/257 and SDN/19/04).\n - Promote private sector involvement in the energy sector (risk-sharing arrangements, restarting energy auctions) and enhance the electricity grid (including green investments).\n - Enhance independence and capacity of regulators to support competition and remove barriers to trade in services (e.g., transportation and logistics).\n - Foster financial inclusion to enhance welfare and offset ongoing credit contraction.\n - Strengthen governance: focus on swift, effective implementation of anti-corruption measures and enact pending AML/CFT legislation.\n\nMexico: IMF Staff Concluding Statement of the 2020 Article IV Mission — October 6, 2020\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/2020/10/06/mcs100620-mexico-imf-staff-concluding-statement-of-the-2020-article-iv-mission" } ], "bullets": [ "[Markdown version](/en/news/articles/2020/10/06/mcs100620-mexico-imf-staff-concluding-statement-of-the-2020-article-iv-mission/index.md)", "[Structured JSON version](/en/news/articles/2020/10/06/mcs100620-mexico-imf-staff-concluding-statement-of-the-2020-article-iv-mission/index.json)", "[Bundle manifest](/en/news/articles/2020/10/06/mcs100620-mexico-imf-staff-concluding-statement-of-the-2020-article-iv-mission/bundle-manifest.json)", "Published: October 6, 2020", "Over 75,000 lives have been lost; unofficial estimates are notably higher.", "Of around 12 million workers who lost their jobs, most from the informal sector, over 4 million remain outside the workforce.", "The share of the population in working poverty jumped from 36 to 48 percent.", "The shock has disproportionately burdened the poor and the vulnerable.", "Projected output growth: –9 percent in 2020, 3½ percent in 2021, and close to 2 percent thereafter.", "Employment, income, and poverty will take several years to return to pre-pandemic levels.", "Risks tilted to the downside: possible Covid-19 resurgence domestically; prolonged labor market disruption; renewed global financial volatility; lower oil prices; adverse growth in key trading partners.", "Upside scenarios: early vaccine availability; advanced-economy buoyancy from large policy interventions; faster re-absorption of workers into the labor force.", "Authorities increased health spending and direct budget support by 0.7 percent of GDP; G20 emerging markets provided over 3 percent of GDP support on average.", "Additional support provided via loans, reallocated spending, front-loaded social pension payments, accelerated procurement, and VAT refunds.", "Draft 2021 budget maintains tight settings aimed at limiting new debt issuance; no concrete medium-term tax reform plans yet.", "Stabilization and trust fund buffers expected to be drawn down substantially.", "Preliminary projections (based on more prudent nominal growth, oil production and tax buoyancy assumptions):", "Recommendation: provide higher temporary near-term fiscal support of 2½–3½ percent of GDP (relative to pre-pandemic policy settings) to stem activity decline and rising poverty.", "Health spending: fully accommodate pandemic-related health care spending so cost and access are not barriers to combating the pandemic.", "Households: increase coverage of social safety net programs to include readily eligible individuals not receiving benefits, those likely to fall into poverty due to the pandemic, and informal workers in hard-hit sectors.", "Businesses: beyond loans for micro and small firms, provide liquidity support (e.g., tax and social security contribution deferrals) and cost-reduction assistance (e.g., wage subsidies) to viable firms.", "A credible medium-term tax reform could raise revenues by 3–4 percent of GDP and narrow the tax collection gap with peers.", "Income taxes: broaden the base by rationalizing inefficient and regressive tax expenditures and reducing the threshold for the top income tax bracket.", "Property taxes: raise subnational property and vehicle registration taxes; consider a federal-level agency to update the cadaster and coordinate subnational policy.", "VAT: eliminate domestic zero-rate items (apart from a few key foodstuffs) and curtail exemptions; strengthen social safety nets to mitigate distributional concerns; improve tax administration (organizational structure, high-coverage VAT audits, electronic means, stronger sanctions). Not renewing the border tax regime (temporary for 2019–20) would limit distortions and raise collections.", "Gasoline excises: reconsider the policy of guaranteeing cumulative retail price growth below inflation, which disproportionately helps the well off.", "Social protection: expand safety nets temporarily and target them; medium-term reforms to introduce a nation-wide unemployment benefits system; reduce overlaps, duplications, and leakages to increase coverage cost-effectively.", "Pensions: recent reform proposal can improve adequacy and sustainability; complementary reforms needed to tackle informality and increase contribution densities.", "Public investment: non-Pemex capital spending at about 1½ percent of GDP in 2019 is very low; higher physical and human capital spending needed to improve productivity, inclusion, and meet the Sustainable Development Goal in healthcare.", "Pemex’s widening losses crowd out resources for essential spending.", "Recommendations: focus production on profitable fields; sell non-core assets; curb plans to increase refining output at a loss; postpone new refinery plans until profitable; partner with private firms for capital and know-how.", "Conditional on business strategy and governance changes, procurement and oversight reforms, consideration could be given to fiscal support to ease Pemex’s high financing needs.", "The central bank cut rates totaling 400 basis points in the easing cycle that commenced last year and accelerated after the pandemic; expanded/established facilities with access up to 3.3 percent of GDP to support market functioning and credit.", "Use of facilities has been limited, partly due to lower loan guarantees and delays in making one facility available.", "Flexible exchange rate, comfortable international reserves, access to the U.S. Federal Reserve swap line, and the IMF’s Flexible Credit Line have bolstered external resilience.", "Inflation and expectations: 1-year ahead inflation expectations remain well anchored; recent price pressures reflect transitory factors (peso passthrough and supply shocks) offset by sustained demand weakness.", "Recommendation: consider cutting rates further, given historic drops in output and labor dislocations, while monitoring inflation expectations.", "Lower rates likely to reduce debt servicing pressures, possibly boost investment, and increase attractiveness of central bank credit facilities, though tradeoffs include capital outflow and peso depreciation risks.", "Consider an independent review of the monetary policy framework to explore inflation determinants, measures, and the policy toolkit.", "Banking sector capitalization: 16.5 percent.", "Nonperforming loan ratio: 2.1 percent.", "Recommendations:", "Policy uncertainty from domestic reform reversals can impede recovery; USMCA reduced trade-related uncertainty but domestic reversals (e.g., in energy sector, cancelation of large private investments) continue to weaken investment prospects.", "Recommended reforms to tackle long-standing impediments:", "[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/2020/10/06/mcs100620-mexico-imf-staff-concluding-statement-of-the-2020-article-iv-mission/index.md", "json": "/en/news/articles/2020/10/06/mcs100620-mexico-imf-staff-concluding-statement-of-the-2020-article-iv-mission/index.json", "bundleManifest": "/en/news/articles/2020/10/06/mcs100620-mexico-imf-staff-concluding-statement-of-the-2020-article-iv-mission/bundle-manifest.json" }, "generatedAtUtc": "2026-09-25T23:51:35.772Z" }