Economic surveys and country surveillance

Economic survey of Mexico 2007

 

Contents | Executive summary | How to obtain this publication | Additional info

Published on 4 October 2007. The next Economic survey of Mexico will be prepared for 2009.
Bookmark this page: www.oecd.org/eco/surveys/mexico.

An Economic Survey is published every 1½-2 years for each OECD country. Read more about how Surveys are prepared. The OECD assessment and recommendations on the main economic challenges faced by Mexico are available by clicking on each chapter heading below.

 

Click here to read the addendum to the Economic Survey of Mexico 2007.

 

Contents                                                                                                                           

Chapter 1. Economic performance and key challenges
Past reforms to liberalise the economy have paid off. Mexico’s per capita has increased and broad macroeconomic stability has been achieved. Although its fiscal GDP position is good, Mexico has to reduce the heavy reliance of the budget on oil revenue. Furthermore, living standards remain well below those in other OECD countries, and current GDP growth is still not high enough to ensure rapid convergence. Mexico needs to introduce further structural reforms to lift per capita GDP growth, raise living standards and reduce poverty faster. This chapter identifies four key challenges that Mexico faces in achieving these goals: i) strengthening public finances; ii) making the most from integration in the world economy; iii) improving infrastructure through greater competition and better regulation; and iv) fostering the creation of more and better jobs and fighting poverty.

Chapter 2. Putting public finances on a firmer footing
Mexico has shown responsibility in fiscal policy, and its headline fiscal position is good. However, the underlying situation of public finances is not yet comfortable because of the heavy reliance of the budget on uncertain oil revenue. As a consequence, fiscal policy is heavily influenced by world oil prices and the sustainability of national oil production. At the same time, there are increasing demands made on the budget for development priorities in the areas of basic infrastructure, education, health and poverty alleviation, which require reliable financing. Increasing the efficiency of public service delivery is a sine qua non for fiscal policy to support the catching up process, but it will go only part of the way to meeting increased budgetary demands. Mexico’s tax/GDP ratio is one of the lowest in the OECD and a far reaching tax reform is a priority in order to increase revenues while reducing distortions. A review of fiscal relations across levels of government is also needed to improve the division of powers and responsibilities and strengthen sub-national governments’ accountability. The new government is planning a broad public finances reform, which is promising. Passing the required reforms and implementing them remains a major challenge.

Chapter 3. Maximising the gains from integration in the world economy
This chapter discusses Mexico’s foreign trade and investment policies and provides specific recommendations to enhance the benefits of a closer integration in the world economy. Over the last twenty years, Mexico has made significant progress in reducing barriers to trade and foreign direct investment (FDI), and this has boosted GDP per capita growth. Nevertheless, Mexico needs to make further progress in reforming its trade policy by further reducing MFN tariff barriers and non tariff barriers so as to promote efficiency in the economy. Barriers to FDI remain high, particularly in some services and infrastructure sectors, such as telecommunications and domestic land transport. Restrictions to foreign ownership should be eased to attract higher inflows and thereby improve productivity. To broaden the benefits from FDI, supplier linkages between FDI investors and other firms in Mexico should be enhanced.

Chapter 4. Improving infrastructure in Mexico
To lift overall growth and improve the benefits from openness to trade and FDI, Mexico needs to make complementary reforms to enhance the efficiency, quality and quantity of infrastructure services. Transport infrastructure efficiency has a direct effect on domestic and international trade flows and overall growth by lowering delivery times and transport costs, while efficiency in telecommunications and energy influences the cost competitiveness of Mexican firms. Despite progress made to increase competition and lift productivity in infrastructure, there is scope for further improvements. This chapter reviews progress achieved so far in developing infrastructure and identifies remaining challenges in key sectors, making specific recommendations on how to strengthen competition and improve regulation. State owned firms still have a large presence in the infrastructure sector, and their governance and regulation needs to be improved. There are also areas that are in principle opened to competition but where application of the law is impaired and effective competition is lacking. Steps should be taken to reduce discretionary decision making and introduce or clarify rules for accessing network assets so as to facilitate entry of new participants and foster competition. Price signals to ensure efficient investment and consumption decisions and facilitate private investment should be strengthened in some sectors by removing price subsidies, while using targeted income support to address legitimate social concerns.

Chapter 5. Creating more and better jobs and reducing poverty
Stronger economic growth is the most effective way to boost job creation and incomes. There are few disincentives to work in Mexico and low open unemployment. But many workers are involved in low productivity and low rewarding jobs, often in the informal sector. According to most indicators, informal activities are pervasive and have been expanding over the past decade. A number of factors contribute to informality. First, low human capital makes it difficult for many workers to take up more productive jobs. Second, employment protection legislation is relatively restrictive, reducing labour demand in the formal sector and, in the absence of income support for many dismissed workers, these cannot afford staying unemployed, taking up the first job they find. Furthermore, measures that strengthen the incentives to work in the formal sector are required. Labour market difficulties are closely related to poverty and exclusion. Social policies have a key role to play in promoting access to the formal labour market and pulling people out of the poverty trap.  This chapter argues that what is required to foster the creation of more jobs in the formal sector  is a comprehensive approach, including: measures to improve the efficiency and reliability of social security services; a modernisation of labour market legislation with a view to better balance flexibility and workers’ protection; measures to upgrade competences, by promoting effective training programmes. It is also important to maintain the focus of policy intervention on fighting poverty and addressing basic social needs. The coherence between policies is the key to enhancing the adaptability of the workforce, helping workers take advantage of new work opportunities in the formal sector and allowing the most vulnerable to escape from poverty and exclusion.

 

How to obtain this publication                                                                                      

The Policy Brief (pdf format) can be downloaded in English. It contains the OECD assessment and recommendations.

Una versión para imprimir de la síntesis en Español, en formato pdf, también puede ser descargada. Esta incluye la “Evaluación y recomendaciones” de la OCDE, pero no incluye todas las figuras que aparecen en las paginas anteriores.

The complete edition of the Economic survey of Mexico 2007 is available from:

Additional information                                                                                                  

 

For further information please contact the Mexico Desk at the OECD Economics Department at eco.survey@oecd.org.  The OECD Secretariat's report was prepared by Bénédicte Larre, David Haugh and Bruno Rocha under the supervision of Stefano Scarpetta. Research assistance was provided by Roselyne Jamin.

 

 

 

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