IMF Executive Board Concludes 2021 Article IV Consultation with Mexico
IMF News, November 5, 2021
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- Published: November 5, 2021
Economic outlook and recent performance
- The Mexican economy is rebounding from its deepest recession in decades, driven by strong U.S. growth and the pandemic-related re-opening of sectors.
- After shrinking 8.3 percent in 2020, real GDP is forecast to grow by 6.2 percent in 2021 and 4 percent in 2022.
- The current account, which jumped to a record surplus of 2.4 percent of GDP in 2020, has moderated and is nearly balanced.
- Broad money growth: 13.4 percent (2020), 9.2 percent (2021 proj.), 6.6 percent (2022 proj.).
- Credit to non-financial private sector (% change): 1.5 (2020), 3.3 (2021 proj.).
Humanitarian and social impacts of COVID-19
- There have been over half a million excess deaths.
- Under-employment remains very high.
- Poverty that was high before the pandemic has increased further.
- The young have experienced sizable learning losses with potentially harmful long-term consequences.
- Poverty headcount ratio (% of population, 2020): 43.9
Fiscal, public debt, and monetary policy
- The government has emphasized a conservative fiscal stance with a focus on containing debt.
- Overall deficit target: 4.2 percent of GDP in 2021.
- Increased allocations for health spending and public investment in 2021.
- Efforts to combat tax evasion have contributed to generally better-than-expected revenues.
- Gross debt of the public sector (by staff’s definition) is estimated at about 60 percent of GDP.
- With inflation well above its target, the central bank has raised the policy rate to 4.75 percent.
- Consumer prices, end of period (%): 3.2 (2020), 5.9 (2021 proj.), 3.1 (2022 proj.).
- Consumer prices, period average (%): 3.4 (2020), 5.4 (2021 proj.), 3.8 (2022 proj.).
- 1-month Treasury bill yield (in percent): 5.3 (2020), N.A. (2021 proj.).
Financial sector and external buffers
- Banking sector: strong capital positions; nonperforming loans are relatively low at 2.4 percent of total loans (as of May 2021).
- International reserves: 199.1 (US$ billions, 2020), 211.8 (2021 proj.), 221.5 (2022 proj.).
- Gross international reserves in months of next year's imports of goods and services: 4.6 (2020), 4.8 (2021 proj.).
- Total external debt (% GDP): 43.1 (2020), 36.8 (2021 proj.), 36.4 (2022 proj.).
- Foreign direct investment (% GDP): 2.3 (2020), 1.9 (2021 proj.).
Executive Board’s assessment and policy recommendations
- Directors commended authorities for maintaining economic stability through a challenging period, underpinned by very strong macroeconomic policies and institutional policy frameworks.
- Given economic scarring risks and Mexico’s low long run growth performance, Directors underscored the need to safeguard the recovery and promote stronger, more inclusive, and greener growth.
- Fiscal policy:
- Directors generally saw merit in additional well targeted fiscal support using available fiscal space for health and education, social safety nets, and quality public investment.
- A few Directors considered the authorities’ conservative approach appropriate to contain public debt.
- Directors stressed the importance of enhancing spending efficiency and containing the projected rise in pension spending.
- A credible medium term tax reform, to be implemented as the economy strengthens, would help finance needed social and public investment spending and put the public debt to GDP ratio on a firm downward trajectory.
- Monetary policy:
- Recent inflationary pressures, while mostly temporary, pose a difficult balancing act amid still sizable slack.
- Directors recommended a gradual, data driven pace of policy normalization that carefully balances support for the recovery while keeping medium term inflation expectations well anchored.
- Continued efforts to enhance the central bank’s communications would be helpful; a strategic review of the monetary policy framework could be conducted at the appropriate time.
- The flexible exchange rate should continue to serve as an external shock absorber.
- Structural and sectoral recommendations:
- Reform Pemex’s business strategy and governance.
- Implement a comprehensive climate strategy, considering the scope and level of carbon pricing as part of broader mitigation and adaptation actions and redistribution policies.
- Leverage Mexico’s large and diverse renewable resource base to foster a cheaper, more sustainable, and competitive energy sector.
- Tackle impediments to productivity growth through well prioritized structural reforms: promote labor market formality, narrow gender gaps, foster financial inclusion, and improve governance.
- Calibrate minimum wage increases to productivity growth.
- Advance AML/CFT reforms and address outstanding recommendations from the 2016 FSAP.
Key economic and country statistics (selected)
- Population (millions, 2020): 127.8
- GDP per capita (U.S. dollars, 2020): 8,403.6
- Quota (SDR, millions): 8,912.7
- 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
Mexico: Selected Economic Indicators, 2020–22 (selected series)
- Output
- Real GDP (% change): -8.3 (2020); 6.2 (2021); 4.0 (2022)
- Employment
- Unemployment rate, period average (%): 4.4 (2020); 4.1 (2021); 3.7 (2022)
- General government finances
- Revenue and grants (% GDP): 24.5 (2020); 24.0 (2021); 23.2 (2022)
- Expenditure (% GDP): 29.0 (2020); 28.3 (2021); 26.8 (2022)
- Overall fiscal balance (% GDP): -4.5 (2020); -4.2 (2021); -3.5 (2022)
- Gross public sector debt (% GDP): 61.0 (2020); 59.8 (2021); 60.1 (2022)
- Balance of payments
- Current account balance (% GDP): 2.4 (2020); 0.0 (2021); -0.3 (2022)
- Exchange rate
- REER (% change): -7.6 (2020); …
IMF Communications Department press release, November 5, 2021.
