Mexico: A comprehensive reform agenda would help optimise the strength and quality of the recovery and medium-term growth

Solid macroeconomic policies helped Mexico navigate the pandemic-induced recession and put its economy back on track, but challenges remain to ensure that the ongoing recovery is sustainable and offers the opportunity to benefit to all, according to a new OECD report.

A comprehensive reform agenda would be essential for lifting investment and turning around low productivity growth, while stronger growth and more jobs, combined with increased social spending would help reduce poverty and improve social cohesion.

The latest OECD Economic Survey of Mexico shows that innovative debt management, sound monetary policy and a flexible exchange rate limited the economic impact of the crisis and ensured access to international capital markets. The economic recovery is underway, led by strong performance of manufacturing and agriculture sectors and accelerating services. Mexico’s GDP is projected to rise by 2.3% this year and 2.6% next year.

“Like many countries around the world, Mexico was hit hard by the Covid-19 pandemic, but the recovery is well and truly underway,” OECD Secretary-General Mathias Cormann said, presenting the Survey during a virtual event alongside Mexican Minister of Finance Rogelio Ramírez de la O. “Mexico has great potential to become a high-growth economy, with higher living standards for all. An ambitious and comprehensive reform agenda will be needed to turn this opportunity into reality.”

The Survey presents a range of recommendations for improving medium-term growth prospects, which have under-performed over the past two decades. To reinforce the macroeconomic policy framework, Mexico should maintain its commitment to sound public finances and debt sustainability and meet increasing spending needs by boosting tax revenues. The Survey identifies proposals that have the potential to raise tax revenues by 3.5% of GDP, including through the elimination of inefficient and regressive exemptions and a reform of the property tax.

Restarting private investment and turning around low productivity growth are fundamental priorities to improve Mexico’s medium-term growth potential. This would require comprehensive reforms to improve business regulations, boost competition, reduce informality and corruption and step-up efforts to meet greenhouse gas emission targets.

Continuing to boost social spending, including on education and health, and public investment would be important to support the ongoing recovery and to improve opportunities for all Mexicans. Widening access to finance and strengthening digitalisation would provide more equal opportunities and help to foster growth, the Survey said.

 

See a Survey Overview with key findings and charts.

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