## IMF Executive Board Concludes 2023 Article IV Consultation with Mexico

_IMF News, October 31, 2023_

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## Bibliographic details
- Published: October 31, 2023

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### Overview and timing
- 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

### Growth and labor market
- 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).

### Inflation and monetary policy
- 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.

### Fiscal outlook and public debt
- 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.

### External sector and balance of payments
- 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.

### Financial sector resilience
- 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.

### Structural reforms and medium-term priorities
- 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.

### Key statistics and country facts
- 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 Board assessment and next steps
- 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).*

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## References

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