Economic surveys and country surveillance

Economic Survey of Mexico 2009: Executive summary

 

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The following is the Executive summary of the OECD assessment and recommendations, taken from the Economic Survey of Mexico, published on 30 July 2009.

 

Contents

 

Despite improved fundamentals, Mexico has not escaped the world economic recession. The global manufacturing downturn and the collapse of trade, notably with the United States, have depressed the real sector. Reduced availability of credit has started to bear on activity, although the financial sector has so far weathered the global crisis. Low oil prices are putting pressure on budget revenue, despite a welcome hedging this year. The change of sentiment of international investors towards emerging-market borrowers has led to reduced net capital inflows and a large depreciation of the currency. The outbreak of influenza is likely to also contribute to the downturn. Thus, growth is set to be negative this year and recover only gradually in 2010. The authorities have responded with liquidity measures, lower interest rates, foreign currency interventions and a fiscal stimulus. But there might be room for more policy action.
There is no space for further discretionary fiscal stimulus, but automatic stabilizers should be allowed to operate freely until the recovery is well entrenched. Lower revenues could be partly compensated by drawing down the oil stabilization fund. To meet external financing requirements, the government has secured new financial resources from capital markets, multilateral lenders and the US Federal Reserve. Going forward, Mexico should seek to strengthen the counter cyclical characteristics of the budget framework by adopting a fiscal rule adjusted for the cycle and smooth the injection of oil wealth into the economy. As oil extraction is likely to decline gradually over the next two decades, reforms are needed to reduce dependence on oil revenue.
Health insurance coverage is incomplete and uneven across social groups, which contributes to lower life expectancy and reduces the efficiency of health spending. Recent health reforms have been effective in providing basic health care to some of the poorest groups, but achieving universal coverage by 2011 will remain challenging. In addition, the existence of separate, vertically integrated insurance networks increases administrative costs. Further reforms are also needed to reduce the fragmentation of the health system.
The coverage of lower secondary education is inadequate as only two-thirds of the relevant age group attends schools. Furthermore, poor PISA scores reflect low teaching quality, a consequence of non transparent teacher selection processes until recently and limited school autonomy. Accountability to the government and parents is also low. The Alianza reform makes a promising step in the direction of addressing these problems and should be fully implemented.
Structural reforms in key areas are needed to boost long-term growth, which has been weaker than in many other emerging economies. The recent significant reductions in import tariffs should help the economy take fuller advantage of trade and investment integration, which could be a relative strength for Mexico given its geographic location. In addition to education and health, further measures are needed to enhance product market competition, especially in network industries, promote the rule of law and build much needed transportation infrastructure. The investment regime is too restrictive in some sectors (such as telecommunication and energy) and should be liberalised. Persisting with structural reforms despite the recession would support both short term recovery and longer term growth.

 

How to obtain this publication

 

The complete edition of the Economic Survey of Mexico is available from:

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

 

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 Nicola Brandt, Cyrille Schwellnus and Tonje Lauritzen under the supervision of Patrick Lenain and Piritta Sorsa. Research assistance was provided by Roselyne Jamin.

 

 

 

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