Via IMF (Den Internationale Valutafond)

IMF Executive Board Concludes 2020 Article IV Consultation with Mexico







November 4, 2020















Washington, DC: On November 2, 2020, the Executive
Board of the International Monetary Fund (IMF) concluded the Article IV
consultation

[1]

with Mexico.

Mexico has been hit hard by COVID-19. Official statistics indicate that
over 85,000 lives have been lost. About 12 million workers lost their jobs,
many of whom came from the informal sector, out of which around 4 million
have not returned to the workforce. The share of the population in working
poverty jumped from 36 to 48 percent, as of June.

Output is expected to decline by 9 percent in 2020, the steepest
contraction since the Great Depression. It is expected to recover modestly
going forward. Although inflation has edged up on account of exchange rate
passthrough and supply disruptions, it is projected to decline gradually as
domestic demand remains suppressed by labor market dislocation, wealth
effects, and concerns about the path of the pandemic.

The authorities responded to the pandemic by increasing health spending and
supporting households and firms. They provided loans, reallocated some
expenditure items, front-loaded spending for social pension payments to the
elderly and disabled, and accelerated procurement processes and VAT
refunds, among other actions. The authorities also implemented tax policy
measures and introduced tax administration measures to increase tax
collections. Monetary policy started easing last year and accelerated
following the pandemic for cuts totaling 400 basis points, reducing the
policy rate to 4.25 percent. The central bank also expanded several
facilities, with access up to 3.3 percent of GDP, to support market
functioning and credit provision. The flexible exchange rate has
facilitated absorption of shocks. Comfortable international reserves,
access to the U.S. Federal Reserve swap line, and the IMF’s Flexible Credit
Line have bolstered the ability to withstand external stress.

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Executive Board Assessment

[2]

Executive Directors generally agreed with the thrust of the staff
appraisal. They commended the authorities for taking timely action to
mitigate the impact of the pandemic on peoples’ health and the economy, and
for maintaining very strong policies and institutional policy frameworks.
They noted that the economic recovery is expected to be gradual and that,
against the backdrop of considerable risks and uncertainty over the
evolution of the pandemic, the large social and economic costs are likely
to persist. Directors emphasized the importance of limiting the damage from
the pandemic, promoting a robust recovery, and pursuing strong, durable,
and inclusive growth. Continued close engagement and dialogue between the
authorities and staff on policy options will be important.

Most Directors recommended a further temporary, well-communicated, and
targeted near-term fiscal support, with due consideration of the country’s
circumstances and safeguarding medium-term fiscal sustainability. A few of
these Directors cautioned that limited fiscal support could lead to greater
pressure on public finances through a deeper economic contraction. A few
other Directors, however, saw the authorities’ stance as prudent, given the
uncertain path of the pandemic. Directors generally saw the need for
announcement of a credible medium-term tax reform—to be implemented once
the recovery is underway—to bolster the space for providing near-term
support, close fiscal gaps, lower public debt, and finance needed
investment and social spending. A number of Directors suggested that the
tax reform plans should be announced once a firm recovery is in place.

Directors welcomed the authorities’ recent steps to improve tax
administration. They recommended broadening the tax base, raising
subnational taxes, and reducing VAT gaps while strengthening social safety
nets. They also welcomed the authorities’ pension reform proposal, while
urging them to consider complementary measures to mitigate labor market
informality. Directors emphasized further reprioritizing public spending to
promote inclusive growth by strengthening social protection and increasing
public investment. They urged the authorities to revisit Pemex’s business
strategy and further reform its governance.

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Directors considered that the actions of the central bank have supported
the functioning of financial markets and the economy. They noted that the
flexible exchange rate has facilitated the absorption of shocks, while
comfortable international reserves, access to the U.S. Federal Reserve swap
line, and the Fund’s Flexible Credit Line have bolstered the ability to
withstand external stress. A number of Directors considered that there may
be scope for further monetary policy support, while safeguarding financial
stability. Many other Directors, however, supported a more cautious
approach, given increased inflation and the potential tradeoffs. Directors
recommended continued close monitoring of risks in the banking sector and
upholding minimum regulatory and supervisory standards while using the
inherent flexibility of the framework.

Directors emphasized that steadfast implementation of structural reforms is
key to delivering lasting improvements in investment and productivity and
to reaping the benefits of the USMCA trade agreement. They urged the
authorities to forcefully tackle labor market informality, advance
governance and AML/CFT efforts, enhance public investment efficiency,
improve access to credit, and leverage private involvement in the energy
sector. Directors also encouraged consideration of a nationwide
unemployment benefits system.


Mexico: Selected Economic, Financial Indicators 1/

(2016-2020)

2016

2017

2018

2019

2020 2/

(Annual percentage changes, unless otherwise indicated)

National accounts and prices

Real GDP

2.6

2.1

2.2

-0.1

-9.0

GDP per capita in U.S. dollars 3/

8,789

9,343

9,753

10,024

8,141

Gross domestic investment (in percent of GDP)

23.6

22.9

22.7

21.1

19.3

Gross domestic savings (in percent of GDP)

21.4

21.1

20.7

20.7

20.5

Consumer price index (end of period)

3.4

6.8

4.8

2.8

3.7

External sector

Exports, f.o.b.

-1.7

9.5

10.1

2.2

-12.9

Imports, f.o.b.

-2.1

8.6

10.4

-1.9

-14.3

External current account balance (in percent of GDP)

-2.3

-1.8

-2.1

-0.3

1.2

Gross international reserves (in billions of U.S. dollars)

178.0

175.4

176.4

183.0

190.4

Outstanding external debt (in percent of GDP)

38.3

37.7

36.6

36.6

45.5


Nonfinancial public sector (in percent of GDP)

Government Revenue

24.6

24.6

23.5

23.8

24.3

Government Expenditure

27.4

25.7

25.7

26.2

30.1

Augmented overall balance

-2.8

-1.1

-2.2

-2.3

-5.8

Money and credit

Financial system credit to the non-financial private sector

16.5

10.8

8.8

3.0

-1.4

Broad money (M2a)

12.3

11.2

5.3

6.8

8.3

Source:

1/ Methodological differences mean that the figures in this
table may differ from those published by the authorities.

2/ Staff projections.

3/ IMF staff estimates.


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[1]

Under Article IV of the IMF’s Articles of Agreement, the IMF holds
bilateral discussions with members, usually every year. A staff
team visits the country, collects economic and financial
information, and discusses with officials the country’s economic
developments and policies. On return to headquarters, the staff
prepares a report, which forms the basis for discussion by the
Executive Board. The 2020 Article IV Consultation with Mexico was
held virtually.


[2]

At the conclusion of the discussion, the Managing Director, as
Chairman of the Board, summarizes the views of Executive Directors,
and this summary is transmitted to the country’s authorities. An
explanation of any qualifiers used in summings up can be found
here:

http://www.IMF.org/external/np/sec/misc/qualifiers.htm

.


IMF Communications Department
MEDIA RELATIONS

PRESS OFFICER: Maria Candia

Phone: +1 202 623-7100Email: MEDIA@IMF.org

@IMFSpokesperson