Published on 12 September 2005 (The next Economic Survey of Mexico will be published on 4 October 2007)
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The OECD assessment and recommendations on the main economic challenges faced by Mexico are available by clicking on each chapter heading below. Chapter 1 identifies the challenges for which the subsequent chapters provide in-depth analysis and policy recommendations.
Chapter 1. Economic performance and key challenges
This chapter reviews the recent macroeconomic performance of Mexico and the strengths and weaknesses of its economy, identifying the main challenges it faces. The fundamental challenge for policy makers is to raise growth in living standards, and ensure that incomes are better shared among the population, allowing a reduction in still widespread poverty. Two key areas for actions are identified: raising human capital and removing obstacles to private investment. Beside the catching-up challenge, the authorities are also faced with the challenge of strengthening public finances.
Chapter 2. Delivering efficient and equitable education services
This chapter discusses the performance of education services up to the upper secondary level. It assesses both the efficiency (outcome for money invested) and the equity of the system. The chapter shows that the education system has to be improved further to narrow the human capital gap with other OECD countries at a faster pace and to better prepare children for life and work in a modern economy. Mexicans spend comparatively few years in formal education, and the quality of the education they receive is lower than in other OECD countries. This poor performance does not stem mainly from a lack of resources but rather from inefficiencies and misallocation of spending and weak incentives for education professionals to perform well. The chapter makes specific recommendations to improve the system. The ongoing efforts undertaken by the authorities go in the right direction but are not sufficient.
Read also ECO Working Paper 447 The education challenge inMexico: delivering good quality education to all
Chapter 3. Improving conditions for business and investment
This Chapter proposes a number of policy measures which, in addition to human capital development, are the most promising to achieve higher productivity growth in Mexico. Many reforms have been undertaken over past years, but the benefits were less than expected, suggesting that some key elements were missing. The business sector would benefit from a reduction of regulatory and administrative burdens. Steps should also be taken to lift barriers to entry, including for foreign direct investment, and to foster effective competition throughout the economy: enhancing market access to potential competitors and ensuring a level playing field through better competition law enforcement are likely to encourage investment and innovation. Framework conditions for financing should ensure that even domestic-oriented firms of small and very small size have access to formal financial services in order to invest and grow. Finally, measures that facilitate labour mobility are needed to help transform human capital improvements into income gains.
Chapter 4. Strengthening public finances
Fiscal policy has gained credibility, budget targets have been met and the public sector borrowing requirement has come down. But there are important fiscal challenges. The medium-term framework should be strengthened to entrench fiscal rectitude and consistency of fiscal policy over time. In the recent past, a large proportion of extra oil revenue has been spent wisely or saved. Guidelines should be set to deal with the current situation of oil revenues that are high and likely to remain so for some years ahead. These additional resources are not necessarily permanent. Rules should ensure that they serve to increase public sector net worth by reducing the public debt, financing investment and building up a sizeable Oil Stabilisation Fund. There are also development priorities (basic education, health, infrastructure, poverty alleviation) that require additional funding. These recurrent spending needs will have to be financed by permanent sources of revenue. A revenue-enhancing tax reform remains a priority. Non-oil related revenue is low relative to GDP and even with oil-related revenue (about a third of the total) the tax/GDP ratio is one of the lowest in the OECD.
Chapter 5. Getting the most out of public sector decentralisation
Enhanced autonomy of sub-national governments has spurred innovative management. Spending assignments across levels of government, however, often overlap and/or are not yet fully understood by most citizens. Sub-national governments’ accountability is further reduced by the heavy reliance on federal transfers while their use as collateral for states' borrowing potentially undermines the role of financial markets in disciplining fiscal behaviour. Getting the most out of decentralisation would thus require making sub-national governments more accountable so as to provide cost-effective public services and promote fiscal sustainability. Decentralisation should also be more consistent with the aim of improving interregional equity in obtaining access to core public services.
Coming soon ECO Working Paper 453 Getting the most out of public sector decentralisation in Mexico
A printer-friendly Policy Brief (pdf format) can also be downloaded. It contains the OECD assessment and recommendations, but not all of the charts included on the above pages.
To access the full version of the OECD Economic Survey of Mexico:
For further information please contact the Mexico Desk at the OECD Economics Department at email@example.com. The OECD Secretariat's report was prepared by Bénédicte Larre, Stéphanie Guichard and Isabelle Joumard under the supervision of Nicholas Vanston.