Alberto Gonzalez Pandiella
OECD
OECD Economic Surveys: Mexico 2026
Abstract
The Mexican economy has been significantly affected by heightened global uncertainty and changes in United States trade policies. Growth has moderated in 2025 with non-automotive exports and private consumption providing the main support. Safeguarding macroeconomic stability and reinvigorating growth, after two decades of relatively modest performance, are critical priorities. Reducing the fiscal deficit through credible measures on both the spending and revenue sides, embedded within a sound medium-term fiscal framework, would help preserve fiscal stability. Channelling additional tax revenues toward productivity-enhancing investments would strengthen growth prospects. Crime remains a major concern for firms and citizens, significantly weighing on economic activity. Further strengthening efforts to combat it is essential to foster investment and growth.
The Mexican economy has been significantly affected by heightened global uncertainty, particularly shifts in United States trade policies. Economic activity has softened (Figure 1.1), though it continues to be supported by private consumption and exports (Figure 1.2). Investment has weakened and the authorities have launched Plan Mexico, a medium-term agenda aimed at fostering it (Box 1.1). Strong macroeconomic fundamentals, including prudent public debt management, a flexible exchange rate, a well-capitalised and liquid financial system, low levels of private sector indebtedness and a credible and independent central bank, continue to support the economy. Fiscal consolidation is underway following a marked increase in the deficit in 2024. Inflation has eased substantially since the post-pandemic inflation episode, but remains close to the upper bound of the central bank’s target range. Multidimensional poverty has fallen, with the share of people living in poverty declining from 42% in 2018 to 30% in 2024 (INEGI, 2025[1]), reflecting increases in real wages and social transfers. Extreme poverty also decreased, from 7 % in 2018 to 4 % in 2024. Growth is projected to stay moderate in the coming years, extending a two-decade period of relatively weak performance (Figure 1.3) and underscoring the need to deepen and accelerate reforms to improve the quality of public spending, enhance education outcomes, reduce crime and advance digitalisation.
Real GDP, index 2019-Q4 = 100, s.a.
Note: LAC is a simple average of Chile, Colombia, Costa Rica, Argentina, Brazil, and Peru.
Source: OECD Economic Outlook (database).
Announced in 2024, Plan México sets out an ambitious agenda to revitalise growth, boost private investment, and enhance the country’s productive capacity. The plan is built around three main pillars:
1. Facilitating private investment by streamlining and digitalizing administrative procedures, simplifying business licensing, and expanding access to finance, particularly for small and medium-sized enterprises.
2. Closing infrastructure gaps through large-scale investments in energy, water, transport, and digital connectivity, aimed at improving logistics efficiency, ensuring reliable utilities, and supporting regional development.
3. Increasing domestic value added in strategic sectors, such as transport equipment, textiles, and pharmaceuticals, by promoting local supply chains, innovation, and technology adoption.
Note: In Panel A, industry refers to mining; generation, transmission, distribution and commercialisation of electricity, water supply and natural gas piped to the final consumer; construction; and manufacturing industry.
Source: INEGI; and OECD Economic Outlook (database).
Index of real PPP-adjusted GDP per capita, 2000 = 100
Note: LAC is a simple average of Chile, Colombia, Costa Rica, Argentina, Brazil, and Peru. Dynamic Asia includes India, Indonesia, Malaysia, Philippines, Thailand, and Viet Nam.
Source: World Bank World Development Indicators (WDI) (database).
1.1.1. Trade tariffs and uncertainty have started to weigh on some exports
As an open economy with strong trade links to the United States, its main trading partner, accounting for over 80% of Mexican exports (Figure 1.4), Mexico is particularly exposed to rising trade restrictions and broader global uncertainty. Recently imposed tariffs by the United States (Table 1.1) resulted in an increase in effective trade tariffs for Mexico (Figure 1.5). Given Mexico’s deep integration with the United States supply chains, especially in sectors such as automotive manufacturing, these measures can have far-reaching implications. Automotive exports have weakened, while non-automotive manufacturing exports have proven resilient so far (Figure 1.6), supported by solid demand from the United States. Exports of computer equipment have been particularly strong, driven by robust growth in the ICT sector in the United States, increasing diversification in exports to the United States across sectors and states. However, the full impact of higher trade tariffs and persistent high uncertainty is expected to unfold over the medium term.
Recent increases in bilateral tariff rates mean that Mexican exports to the United States that do not make use of the United States–Mexico–Canada Agreement (USMCA) framework are now subject to additional general tariffs of up to 25% (Table 1.1). By contrast, trade conducted under the agreement continues to benefit from preferential treatment, as most goods traded within the USMCA framework remain exempt from tariffs. Currently, around 90% of exports to the United States make use of the USMCA, although there are significant differences across sectors (Figure 1.7). For instance, in 2024, nearly 100% of trucks, 80% of automobiles, and over half of auto parts exported from Mexico to the United States used the USMCA framework. Likewise, 100% of exports of certain fruits and vegetables, dairy products, and eggs benefited from the agreement (Banxico, 2025[2]). In contrast, many high-tech goods, such as mobile phones, computers, and medical instruments, were exported without invoking USMCA preferences.
Note: LAC is a simple average of Argentina, Brazil, Chile, Colombia, Costa Rica, and Peru.
Source: UN Comtrade (database).
% point change in effective US tariffs, considering product line tariffs and exemptions
Note: Estimates based on trade policy announcements as of 14 November 2025 and calculated using weights based on product level data for US imports by country in 2024. These take account of country-specific tariff rates and sector-specific changes due to a 25% tariff rise for listed cars, parts, trucks and buses; a 50% tariff rise on steel, aluminium and copper products; and zero-rated general goods as well as those related to semiconductors. Europe, Japan and Korea face a maximum 15% tariff on cars and parts, and timber, and 0% tariffs are applied to civil aviation products, generic pharmaceuticals and certain natural resources). The United Kingdom faces a 25% tariff rise on steel and aluminium, 7.5% for British cars within the annual quota, 10% on timber products, and duty-free civil aviation products. China, Brazil and India face additional country-specific tariffs, with varying application across products. Data classifications are based on product-level lists published by the US administration. LAC is a simple average of Chile, Colombia, Costa Rica, Argentina, and Brazil.
Source: OECD (2025), OECD Economic Outlook, Volume 2025 Issue 2: Resilient Growth but with Increasing Fragilities.
Good exports, index (Jan 2020 = 100), s.a.
Note: Data shows 3-month centered moving averages. In Panel B, data refers to the Information and Communication Technology (ICT) goods trade category (HS codes 2017) as used by UNCTAD.
Source: Banxico.
* It would fall to 12.5% if there is progress in the fight against fentanyl trafficking. ** 0% if 85% of USMCA content; 25% otherwise. ***It will be 25% on non-US content when duty-collection system is in place
Source: OECD.
Ensuring broad compliance with USMCA rules of origin is increasingly important, as it directly determines the extent of Mexico’s tariff free access to the US market. Exporting under the USMCA provides tariff-free access to the United States market, but to qualify, firms must comply with strict rules of origin: typically, at least 50-60% regional content, and for automobiles up to 75%. These thresholds ensure that tariff-free access is reserved for goods truly produced within North America. Before the recent tariffs increases, many Mexican exports benefited from Most Favoured Nation rates of 0%. However, with the tariffs now in effect, and USMCA-covered goods remaining exempt, the opportunity cost of not using the agreement has increased. Indeed, compliance rates have recently increased significantly to close to 90% resulting in lower effective tariff rates for Mexico (Figure 1.8). Further improvements in compliance would reduce these rates even more. Survey data suggest that 58% of firms use USMCA preferences for all their exports, 25% for some products, and 17% do not use them (Banxico, 2025[2]).
Proportion of the value of US imports originated in Mexico that entered under the USCMA in 2024
Note: The classification of products corresponds to the end use of the goods.
Source: Calculated by Banxico with data from the United States Department of Commerce.
Facilitating compliance with USMCA rules of origin will require modernizing Mexico’s certificate of origin system, which remains fragmented, primarily due to the absence of a standardised digital platform and the use of different formats across companies and sectors. The lack of a unified electronic system and of an official certificate means that exporters are responsible for producing and managing their own origin declarations. This increases administrative burden, as firms must maintain multiple supporting documents to substantiate origin claims, raising the risk of inconsistencies and complicating recordkeeping and compliance audits. Small and medium-sized enterprises (SMEs), which often lack specialised staff and digital systems, face the greatest challenge in meeting origin requirements. Simplifying and digitalizing certification could significantly expand their use of USMA preferences.
Note: Imports that are USMCA compliant usually qualify for duty-free treatment across North America. The baseline assumes that tariffs are those specified in table 1.1.
Source: Calculations based on OECD (2025) Interim Economic Outlook 118 September 2025; and US Census Bureau.
In the short term, Mexico can support exporters by simplifying and digitalizing the certification process through user-friendly e-certification tools and faster customs clearance procedures. These improvements would reduce administrative burdens, lower transaction costs, and expand access to USMCA preferences for a broader base of firms, particularly SMEs. In the medium term, collaborating with the United States and Canada to develop a trilateral digital platform for traceability and validation of origin documents would streamline compliance, reduce fraud risk, and strengthen supply- chain integration across North America.
Potential tariff hikes by Mexico could raise costs and trade fragmentation. In January 2026, Mexico implemented tariffs ranging from 5% to 50% on imports from countries with which Mexico does not have a trade agreement, including China, South Korea, India, Indonesia, Thailand and Turkey. These measures could affect around 9% of Mexico’s imports. While the tariffs may increase fiscal revenues, they risk creating distortions and adding to inflationary pressures. To limit these risks, Mexico should continue to engage in the global trading system to reduce policy uncertainty and avoid an escalation of trade barriers. Efforts to prevent further trade fragmentation should be accompanied by measures to strengthen supply chain resilience, including policies to encourage firms to diversify suppliers and export markets (OECD, 2025[3]). Currently, Mexico has free trade agreements with 52 countries, covering around 60% of world’s GDP. Fully leveraging these agreements and pursuing new ones with additional partners would help diversify trade relationships and strengthen economic resilience.
1.1.2. Consumption and investment have weakened
Private consumption has been a key driver of growth over the past four years, underpinned by a robust labour market. More recently, it has begun to moderate (Figure 1.9, panel A), reflecting a slowdown in consumer confidence and in the creation of formal jobs (Figure 1.9, panel B). Unemployment remains close to historically low levels, but labour force participation has recently declined (Figure 1.10), which can reflect discouragement effects from the slowdown in formal job creation and persistent barriers to female participation, such as limited childcare provision (see Chapter 2). Labour informality continues to affect around 55% of total employment and has recently increased (see Chapter 2).
Note: In Panel A, data for final consumption expenditure refers to households and non-profit institutions serving households (NPISH) and is quarterly. Data for consumer confidence is monthly. In Panel B, formal job creation refers to the monthly number of jobs affiliated to the Mexican Social Security Institute.
Source: OECD Quarterly National Accounts (database); and Banxico.
Note: Panel A: the category “available to work” includes those not economically active (i.e. without job-search activities) but that would be available to work; the “underemployment” category refers to the share of economically active individuals aged 15 and over who have the ability and desire to work more hours than their current occupation permits.
Source: INEGI.
Policy uncertainty, which surged in the beginning of 2025 and has remained elevated since then (Figure 1.11), can particularly weigh on investment. Investment in machinery and equipment has weakened, constrained by the spike in uncertainty. Non-residential construction has slowed following the completion of major infrastructure projects in the South, while residential construction remains subdued although it has recently trended up (Figure 1.12). In addition to changes in global trade, domestic developments have further contributed to the uncertain environment. These include a sweeping and unprecedented reform of the judiciary and a constitutional amendment in December 2024 that eliminated the formal independence of the competition authority and sectoral regulators (see section 1.5 in this chapter).
Index
Note: The Economic Policy Uncertainty (EPU) index reflects the relative frequency of Mexico newspaper articles that contain a trio of terms pertaining to the economy (E), policy (P) and uncertainty (U). The Global Trade Policy Uncertainty (TPU) index is based on automated text searches of the electronic archives.
Source: OECD Short-term Indicators (database); and Caldara, Dario, Matteo Iacoviello, Patrick Molligo, Andrea Prestipino, and Andrea Raffo (2020), “The Economic Effects of Trade Policy Uncertainty,” Journal of Monetary Economics, 109, pp.38-59.
Total investment, index Jan-2020 = 100, s.a.
Source: INEGI.
1.1.3. Growth will remain modest
GDP is projected to expand by 0.7% in 2025, before picking up by 1.4% in 2026 and by 1.7% in 2027 (Table 1.2). Private consumption will be supported by low unemployment and declining inflation. Private investment will gradually benefit from lower interest rates, though it will remain constrained by high domestic and global policy uncertainty. Public investment is set to stay subdued as part of efforts to reduce the fiscal deficit. Export growth will be dampened by United States trade tariffs and high global uncertainty. Both headline and core inflation will fall gradually.
Annual percentage change, unless specified
Note: 1. Contribution to changes in real GDP, actual amount in first column. 2. Consumer price index excluding volatile items: agricultural, energy and tariffs approved by various levels of government. 3. Based on national employment survey. 4. The fiscal balance shows the federal public balance. 5. Public debt refers to the net stock of public sector borrowing requirements.
Source: OECD Economic Outlook (database);
The outlook for both growth and inflation is subject to substantial risks. The baseline projections assume a deceleration in the US economy, but a sharper slowdown may weigh further on external demand and exports. Additional trade policy changes could raise policy uncertainty further with adverse impacts on investment and consumer confidence (OECD, 2025[4]). Increased global risk aversion and exchange rate volatility could raise sovereign borrowing costs and could trigger capital outflows. However, Mexico’s strong external position, supported by moderate external debt (Figure 1.13 panel A), ample foreign exchange reserves (Figure 1.13, panel B), a sustainable current account balance (Figure 1.14), and a well-capitalized financial sector (see financial markets section), provide important buffers to absorb these shocks. Additional events that could lead to major changes in the outlook include natural disasters and an escalation of drug related violence (Table 1.3). On the upside, a reduction in uncertainty, such as through a swift and successful renegotiation of the USCMA trade agreement with United States and Canada, could support investment and exports more than currently anticipated. Similarly, the higher United States tariffs on competitors such as Asian economies could accelerate production relocation to Mexico, boosting investment and exports beyond baseline projections.
Note: LAC is a simple average of Chile, Colombia, Costa Rica, Argentina, Brazil, and Peru.
Source: IMF World Economic Outlook, October 2025.
Source: Banxico.
The Central Bank has gradually lowered the policy rate as inflationary pressures have eased. Since March 2024, it has reduced the rate by 425 basis points, from a peak of 11.25% to 7% (Figure 1.15, panel A). Despite this monetary easing, the policy stance remained restrictive up to November, with the real ex ante policy rate above estimates of the neutral rate (Figure 1.15, panel B and Table 1.4). Inflationary pressures increased in the first half of 2025 (Figure 1.16, panel A), largely reflecting higher food, agricultural and energy prices. Core inflation remains above 4%, the upper bound of the target rate. After displaying strong resistance, services inflation has gradually decelerated (Figure 1.16, panel B). One year ahead inflation expectations remain well above the 3% target, although two year ahead expectations are broadly anchored. As economic activity moderates, price pressures are expected to ease, but monetary policy should remain cautious. Recent tariff increases on imports from countries without trade agreements may generate additional price pressures, adding uncertainty to the disinflation path. Further reductions in the policy-rate should remain data-dependent and take place once there is clear evidence that inflation is on a path back to the 3% target. According to OECD projections headline inflation is expected to converge to the 3% target in the second half of 2027, with the policy rate reaching 6.50% by the end of 2026.
The appreciation of the Mexican peso against the U.S. dollar in 2025 (Figure 1.17) has eased inflationary pressures, although the currency has exhibited volatility around the dates of trade tariff announcements. Flexible exchange rates are particularly important for open economies like Mexico’s, as they facilitate natural adjustments to economic shifts, support macroeconomic stability, and serve as a buffer against external shocks. They also play a key role in inflation control. By fostering a more rules-based policy environment, exchange rate flexibility enhances the country’s attractiveness to foreign direct investment and strengthens overall competitiveness. In recent years, Mexico has limited its foreign exchange interventions to only a few episodes of extreme volatility. For instance, no intervention was carried out during the peso depreciation that followed the June 2024 presidential elections. This has allowed Mexico to adapt to shocks in an orderly manner, while reinforcing confidence in its macroeconomic policies and helping to preserve solid macroeconomic fundamentals.
Communication is a fundamental pillar of monetary policy, and Mexico’s Central Bank has made progress in this area over the years (Banxico, 2023[4]). Since May 2022, the Bank has incorporated some elements of forward guidance into its policy statements, providing qualitative information on the likely direction of future monetary policy decisions. With inflation gradually receding but expectations still above target, further enhancements in communication would help to better anchor expectations. Options to further improve communication include providing additional information on how the Bank would respond if economic conditions deviated from current projections. This could be communicated through scenarios, which would emphasise that any announcement about the policy rate evolution does not represent a commitment but rather reflects the Bank’s reaction to specific macroeconomic circumstances. By outlining how policy might respond under other circumstances, such as higher inflation, Mexico’s central bank could reduce uncertainty, which would strengthen the anchoring of expectations, as economic agents gain a clearer sense of how policy is likely to evolve in different situations, thereby aligning their own expectations more closely with the Bank’s target. Greater transparency and predictability in monetary policy can lead to better anchored inflation expectations, lower risk premia and market volatility, and more effective policy transmission. Using scenarios is not exempt from risks and challenges. Scenarios should be explicitly presented as illustrative, not binding, so the public understands that actual decisions will always depend on incoming data. Several OECD Central Banks have recently updated their communication strategies in this direction. For example, in 2020 the Central Bank of Chile upgraded its communication strategy by not only explaining the latest monetary policy decision but also publishing projected ranges for the policy rate in its Monetary Policy Report. These ranges include sensitivity scenarios, alternative to the central projection with a significant probability of occurrence, in which monetary policy could follow a different path. By linking these projections to its inflation and growth outlook, the Bank offers clearer guidance on the likely policy path, strengthening the anchoring of expectations. Norges Bank has been a pioneer in scenario-based monetary policy communication, having introduced in 2005 the regular publication of interest rate projections accompanied by alternative scenarios that illustrate how policy might respond under varying economic conditions. Other OECD central banks, such as Sweden’s Riksbank, the Czech National Bank, the Bank of England or the Reserve Bank of New Zealand, also have well-established experience using scenarios to strengthen the clarity and credibility of their communications.
Note: In Panel B, the horizontal dotted line corresponds to the mid-point of the estimated range for the level of the long-term neutral rate in real terms. The short-term ex-ante real rate is calculated as the difference between the target for the overnight interbank interest rate and the average of the 12-month inflation expectations from the Survey of Expectations of Private Sector Economists.
Source: OECD Economic Outlook (database); and Banxico.
Note: In Panel A, the shaded area represents the Central Bank's inflation target range and inflation expectations refer to expectations by the private sector for the next 12 months.
Source: Banxico; and INEGI.
Note: A decrease implies a depreciation of the Mexican peso and indicates an improvement in competitiveness. Real effective exchange rates (Panel B) are calculated against a basket of currencies (111 countries) using constant trade weights.
Source: OECD Economic Outlook (database); and Banxico.
The financial system has been stable and resilient to recent volatility. Financial markets have functioned in an orderly manner in a context of high uncertainty. The Mexican peso appreciated during 2025, interest rates have declined across all maturities and the stock market registered a positive performance (Banxico, 2025[5]). The financial sector maintains capitalisation, profitability and liquidity levels above most OECD countries (Figure 1.18). Non-performing loans remain also contained. Credit growth has remained constrained, although with a lot of heterogeneity depending on firm size. Loans to debt-issuing firms continued to contract in real terms, reflecting a shift towards issuing market debt over bank loans. Conversely, bank credit to non-debt-issuing firms has grown solidly. Bank surveys suggest this growth was driven by increased demand from large firms. Interest rates have recently fallen, reflecting the pass-through from changes in the monetary policy rate, although they remain high. Credit to households has continued to grow, both for housing and consumption. Private sector indebtedness remains contained (Figure 1.19).
Note: Bank capitalisation refers to the capital adequacy, regulatory tier 1 capital to risk-weighted assets. LAC is a simple average of Chile, Colombia, Costa Rica, Brazil, and Peru.
Source: IMF Financial Soundness Indicators (database).
Note: LAC is a simple average of Chile, Colombia, Costa Rica, Argentina, Brazil, and Peru. In Panel A and B, data for Iceland and Peru refer to 2023.
Source: IMF Global Debt Database.
According to the financial supervisor’s latest stress tests, the financial sector would be resilient to adverse financial economic events (Banxico, 2025[5]) and the greatest risk for financial stability in Mexico stems from a marked weakening of economic activity, at both global and domestic levels. Other key risks include possible prolonged periods of volatility in global financial markets, for example due to greater uncertainty or highly persistent changes in trade policies in some major economies. Shocks resulting from the escalation of international geopolitical conflicts could also create a complex and uncertain global macro financial environment, increasing financial stability risks also in Mexico. These risks are mitigated by a high level of international reserves, active public debt management and low private sector debt.
The financial sector regulatory framework has been further strengthened with continued improvements in prudential oversight and risk management standards. However, some recent OECD recommendations remain pending. This includes enhancing the autonomy and resources of supervisory agencies such as the National Banking and Securities Commission (CNBV), as recommended in the 2019 and 2022 Economic Survey of Mexico. Strengthening inter-agency coordination and upgrading staffing and technical capacity would help to make regulation more robust and safeguard financial stability.
Advancing financial inclusion also continues to be a key challenge, as analysed in detail in the 2022 OECD Economic Survey of Mexico. As of 2021 only about 49.1% of adults held a bank account. Recent policy efforts include the creation of a digital payments platform (CoDi) and several digital banks have started to operate in the country. To accelerate progress, all government programs (social transfers, pensions, salaries), including those run by federal and state governments, could be mandatorily disbursed through formal bank accounts. This would help bring unbanked populations into the formal financial system and enhance transparency and traceability of public funds.
At the same time, safeguarding the financial system from criminal networks remains a priority and efforts to combat illicit financial flows should continue (see also the crime section in this chapter). Financial authorities have established frameworks and procedures to address potential risks. Strengthening due diligence for high-risk clients and ensuring that records of beneficial ownership are accurate and up to date will help sustain these efforts. Authorities also need the right tools to respond effectively. This includes analytical capacities, legal powers, and strong coordination between financial regulators, the tax authority, and law enforcement agencies. International cooperation is equally important. Closer cross-border collaboration, better information sharing with regional partners, and alignment with international standards are all essential. Particular attention should be given to cryptocurrency oversight and asset recovery, which are key to building a more resilient financial system.
Strengthening the resilience of the financial system also requires confronting emerging technological risks (see also Table 1.3 and Chapter 4 in this Survey). In December 2024, the Central Bank published its first Report on Cybersecurity Threats in the Mexican Financial System, aiming to raise awareness and promote preventive action against cyber risks (Banxico, 2025[5]). These risks, particularly those stemming from the increasingly sophisticated use of artificial intelligence, are now among the most serious threats to financial stability worldwide. In response, the Central Bank is closely monitoring the integration of AI in the financial sector and has incorporated AI-related risks into its institutional risk management framework. In line with international practice, this includes risks related to data integrity, transparency and potential misuse of AI tools in cyber-attacks.
1.4.1. Fiscal consolidation has started
Over the past two decades, Mexico has maintained a prudent fiscal policy and kept public debt at relatively low levels. However, in 2024 the public sector deficit rose sharply to 5% (Figure 1.20), reaching its highest level in 35 years. This increase was driven by spending on flagship infrastructure projects, higher allocations to universal non-contributory pensions and additional support to PEMEX, the state-owned oil company. Given that the economy was already expanding, the fiscal stance in 2024 was pro-cyclical, providing stimulus at a time of strong demand. Active debt management helped finance the sizeable fiscal impulse, with 84% of federal government debt denominated in domestic currency, limiting vulnerabilities to external shocks.
Note: Data refer to the non-financial public sector. In panel B, the widest definition of public revenues is displayed, including also social security contributions and state-owned enterprises.
Source: OECD Economic Outlook (database).
In 2025, the authorities began a fiscal consolidation process and the deficit fell to 3.9%. Further consolidation beyond 2025 will be essential to put the debt-to-GDP ratio on a declining path. Without additional measures, debt is projected to rise (blue line in Figure 1.21). According to the government’s 2026 budget, after the reduction in 2025, largely driven by a reduction in capital investment, the deficit is expected to fall to 3.6% in 2026 and to 3% in 2027 (Table 1.5). The measures underpinning this additional consolidation have not yet been specified. With debt-service costs rising to 4.1% of GDP in 2026, fiscal space increasingly constrained, and monetary policy easing, a gradual but credible consolidation strategy is needed. This should balance rebuilding fiscal buffers with avoiding excessive drag on activity. Clear specification of the measures underpinning consolidation would enhance transparency and strengthen investor confidence, helping to lower risk premia and financing costs.
Public spending in Mexico remains low compared to OECD peers (Figure 1.22). At the same time, pressures from interest payments, support to PEMEX and from universal non-contributory pensions are increasing (Figure 1.23). In this context, relying mainly on spending cuts to reduce the deficit could be difficult and risky. Additional unexpected spending needs could arise from higher financing costs due to global financial volatility, more frequent climate-related events, or increased needs for border control, straining debt dynamics. With Mexico having the lowest tax-to-GDP ratio in the OECD, there is scope to raise additional revenues without undermining growth. Further consolidation should therefore rely primarily on raising more revenues, while protecting and gradually increasing spending in priority areas, such as education and crime prevention (Table 1.6 and green line in Figure 1.21). Anchoring these measures in a medium-term fiscal framework would enhance credibility and resilience. In parallel, advancing a broad agenda of structural reforms would boost potential growth and reinforce debt sustainability over time (Table 1.7 and red line in Figure 1.21).
% of GDP
Note: * Are forecasts. Some rows may not add up due to rounding.
Source: Secretaría de Hacienda y Crédito Público.
% of GDP
Note: All scenarios account for ageing costs. Scenario A assumes existing spending and tax policies based on the government’s fiscal plans for 2025. Scenario B assumes the implementation of fiscal recommendations listed in Table 1.6. Scenario C further assumes a gradual increase in potential GDP growth due to growth-enhancing reforms as listed in Table 1.7. It does not account for potential improvements in the primary balance due to higher GDP growth.
Source: OECD calculations.
General government expenditure, % of GDP, 2024
Note: LAC is an unweighted average of Chile, Colombia, Costa Rica, Argentina, Brazil, and Peru. OECD is an unweighted average.
Source: IMF World Economic Outlook, October 2025.
Public expenditure, % of GDP
Note: Pensions refer to contributory and non-contributory pensions.
Source: México Evalúa; CIEP; Secretaría de Hacienda y Crédito Público, Estadísticas Oportunas, CGPE 2026 y PPEF 2026; and OECD calculations.
Note: Numbers in this table are estimates and some are subject to uncertainty. Implementation would take several years. In Mexico’s federal structure, immovable property-related taxes are collected by states and the vehicle-ownership tax by municipalities. At the same time, states and municipalities have significant responsibilities for delivering public services, including education, infrastructure, and local adaptation policies.
Source: OECD calculations.
Estimated impact of selected reforms on potential GDP per capita
Note: Simulations based on the OECD long-term growth model (Guillemette and Château, 2023[6]). The scenarios assume that female employment rates (Scenario A) and the rule of law (Scenario B) converge to the OECD average by 2050, while education outcomes (Scenario C) converge to the third quartile of OECD countries by the same year. The digitalisation scenario (Scenario D) assumes a gradual increase in total factor productivity, calibrated as a 9% rise in TFP by 2040, reflecting the broader adoption of digital technologies across the economy. The impact of the individual reforms does not add up to that of the combined “ambitious reform” scenario, due to non-linearities in the model.
Source: Simulations using the OECD long-term model.
1.4.2. Enhancing the fiscal framework
Mexico’s Fiscal Responsibility Law, enacted in 2006, institutionalized the country’s commitment to fiscal discipline and has played a central role in maintaining fiscal prudence over the years (OECD, 2024[7]). However, fiscal pressures are now increasing: interest payments are rising, support to PEMEX remains costly, and non-contributory pensions are expanding. The deficit jumped to 5% of GDP in 2024, the highest in decades, revealing the limits of the current rules in preventing pro-cyclical fiscal expansions.
At the same time, Mexico faces growing spending needs in areas critical for long-term growth and inclusion, such as education, digitalisation, the green transition and infrastructure. These pressures come in a global environment of high financing costs and recurrent external shocks. A stronger medium term fiscal framework would allow these priorities to be financed sustainably by linking new spending commitments to credible revenue increases and spending efficiency gains. It would also improve strategic planning, strengthen transparency, and help fiscal policy play a countercyclical role during downturns.
Most OECD countries have upgraded their fiscal frameworks by introducing explicit debt anchors, medium term expenditure rules and transparent escape clauses, like Chile (Box 1.2). A similar reform in Mexico would enhance credibility, create space for priority spending, safeguard fiscal sustainability and rebuild fiscal buffers in a more volatile global environment.
At present, Mexico does not operate under a fully-fledged medium-term fiscal framework. The federal budget sets annual fiscal targets and projections for the upcoming year, based on expected revenues and approved spending programs. It also includes projections for key fiscal variables typically up to five years, but these are indicative rather than binding and are not linked to specific expenditure ceilings or revenue measures. As a result, fiscal policy remains largely annual in practice.
Establishing a genuine medium-term fiscal framework is essential at the current juncture. It would strengthen fiscal discipline, while supporting growth by allowing better multi-year planning and prioritisation of spending. This would improve the quality of expenditure, help direct new revenues into areas with the highest economic and social returns, and ensure that consolidation is achieved in a sustainable way. Establishing a genuine multi annual fiscal framework would also help smooth the business cycle. By linking expenditure ceilings and revenue plans over several years, it reduces the risk of pro-cyclical policy, while preserving space for counter cyclical support. Including key planned infrastructure projects and expected annual spending within the medium-term framework would be particularly beneficial, as it would allow fiscal needs to be budgeted in advance, improve the consistency of medium-term fiscal projections, the execution of investments and reduce the risk of future financing gaps or abrupt project delays.
Introduction of a debt ceiling. Chile adopted a gross public debt ceiling serving as the fiscal anchor, which is set by each incoming government within the first 90 days of its mandate through a Supreme Decree issued by the Ministry of Finance. Most recently, a ceiling of 45% of GDP was established, providing an explicit reference point to contain debt accumulation and strengthen long-term sustainability.
Enhanced fiscal rules and escape clauses. The structural balance rule has been strengthened through more precise numerical targets, improved transparency in its calculation, and the inclusion of well-defined escape clauses. These allow for temporary deviations from fiscal targets in the event of exceptional circumstances, such as natural disasters or severe economic shocks.
Reinforced medium-term budget framework. The multi-year expenditure path is now more binding and closely linked to the structural balance rule and the debt ceiling. Annual budgets are required to be consistent with medium-term fiscal targets, and incorporate more detailed projections of revenues, spending, and financing needs over a 3–4-year horizon.
Strengthening of the Fiscal Council (Consejo Fiscal Autónomo). The Fiscal Council’s mandate and operational independence was expanded, and it now plays a more prominent role in evaluating compliance with fiscal rules and validating macroeconomic assumptions.
Mexico also needs to reduce the complexity and rigidity of its current rules. The existing framework relies on three fiscal rules, two balanced budget rules and one expenditure rule. The balanced budget rules specify on one hand that the federal budget can only run a deficit of up to 2 % of GDP if it is due to public investment by the federal government and some States Owned Enterprises, and on other hand, that the target for public sector borrowing requirement should achieve a non-increasing net public debt path relative to the previous year. These balanced budget rules are not linked to any medium-term fiscal anchor and, in practice, they promote short-term discretionary spending cuts to meet annual targets, making fiscal policy highly procyclical, particularly when the stabilization fund is depleted. Replacing the balanced budget rules with a debt anchor, as recommended in the 2024 Economic Survey, would preserve the current focus on keeping debt at prudent levels, but in conjunction with the medium-term fiscal framework, would also reduce procyclicality. Moreover, the expenditure rule applies to only 36% of total public expenditure, significantly limiting its effectiveness in stabilizing expenditure across the economic cycle. Expanding its coverage, as recommended in both the 2022 and 2024 Economic Surveys, would enhance its capacity to build buffers in good times and provide support during downturns. Finally, the system of escape clauses should be simplified and clarified. At present, five separate escape clauses exist and are invoked frequently, given the system’s rigidity and complexity. Mexico should simplify its system of escape clauses by reducing their number and clearly defining the conditions for their use, thereby enhancing transparency and credibility while preserving room for fiscal policy to respond to shocks.
1.4.3. Strengthening the quality of spending
Public spending restraint has been central in Mexico’s strategy to meet fiscal targets. However, given the already low level of public expenditure, the scope for further cuts has become very limited. At the same time, increasing spending on interest payments, PEMEX, the state-owned company, and non-contributory pensions, has created rigidity in spending and reduced the fiscal space to address spending needs in other areas. Key areas, such as education and health already receive less funding than in OECD and regional peer countries (Figure 1.24). Looking ahead, improving the quality of spending will be essential not only to safeguard fiscal sustainability but also to boost growth. This requires a more strategic approach to expenditure planning and prioritisation, including through a medium-term fiscal framework, a more systematic use of spending reviews and cost-benefit analysis, and a gradual shift toward productivity-enhancing spending, such as in education (see Chapter 2) and digitalization (see Chapter 4). It will also be crucial to ensure that any additional fiscal space, such as that created through higher revenues, as discussed in the next subsection, is channelled into productive spending. Expanding revenues and allocating that fiscal space to areas with limited economic returns, such as infrastructure projects with questionable cost-benefit profiles or PEMEX, would be counterproductive.
Note: In both Panels, LAC is a simple average of Chile, Colombia, Costa Rica, Argentina, Brazil and Peru, except in Panel B as data for Colombia is not available. In Panel A, data refer to 2023 for Argentina and Peru, and 2022 for Brazil.
Source: OECD Health Expenditure and Financing (database); and OECD Education at a Glance 2025 (database).
Pension spending has risen sharply in recent years, increasing by 2.4 percentage points of GDP over the past seven years (Figure 1.23), mainly due to the rapid expansion of universal non-contributory pensions. Introduced in 2019, the Pensión para el Bienestar de los Adultos Mayores provides a cash transfer to all individuals aged 65 or above, regardless of their income, contributory history, or wealth. In 2025, a new programme (Pensión Mujeres Bienestar) will extend benefits to women aged 60 to 64, further enlarging coverage. These schemes have become a central pillar of social protection in Mexico and play an important role in reducing poverty among elderly.
While universal non-contributory pensions are easier to administer and have helped to reduce poverty, they also raise concerns about long-term fiscal sustainability and intergenerational equity in a context of limited fiscal space and low revenues. Targeting benefits towards individuals in the lowest income brackets would help ensure that support reaches those most in need while preserving public resources for future generations and other pressing priorities. Moreover, the programmes should be rigorously evaluated beyond their short-term poverty impacts, assessing their effects on labour market participation of all household members, informality, and intergenerational social mobility. At present, the Pensión para el Bienestar de los Adultos Mayores represents around 66% of the urban poverty line, 127% of the extreme urban poverty line and 28% of the minimum wage. Any further increases in benefit levels should be carefully designed to preserve incentives to participate in the contributory pension system.
Ensuring that public spending, particularly on infrastructure projects, is guided by sound and transparent cost-benefit analyses remains a key challenge. Basing projects on rigorous technical evaluation, clear prioritisation, and strong accountability mechanisms helps allocate resources more efficiently and reduces the risk of cost overruns. Stronger project appraisal systems and greater transparency across the investment cycle are essential to raise the quality of public investment, build public trust, and ensure spending supports medium-term growth. The recently approved Public Works law attempts to enhance transparency, efficiency and oversight in public projects. It introduces strategic pre-bid dialogues with suppliers, mandatory market research before tenders, shortens key bidding timelines to accelerate project execution and lowers the threshold for no-bid direct awards from 30% to 20% of the project budget. However, a key pending challenge is that the army and navy, whose role in managing major public works has expanded substantially in recent years, are currently exempt from the law’s transparency and bidding requirements when executing projects under inter-agency agreements. Many of these projects, such as airports, railways, and tourism infrastructure, go well beyond the army’s traditional remit. Yet they remain shielded from the stronger oversight and disclosure standards established by the reform. This exemption limits the law’s potential to improve accountability and project quality in some of the country’s largest infrastructure investments. These improvements in infrastructure projects governance will be particularly important in the context of Plan México, which places a strong emphasis on infrastructure projects, such as rail corridors and energy expansion, as key drivers of competitiveness and regional integration (see Box 1.1 in this chapter).
Mexico also approved reforms to the Public Procurement Law in April 2025, aimed at modernizing and harmonising procurement processes across government entities. The law replaces fragmented regulations with a unified framework that covers goods, services, and leases, and it mandates the use of a centralised digital platform to manage procurement procedures, increase transparency, and improve data traceability. Key innovations include the introduction of integrity criteria in supplier selection, strengthened rules for framework agreements and consolidated purchasing and simplified procedures for small and medium-sized enterprises. However, important challenges remain. The full implementation of the digital platform and the integration of subnational governments and public entities into the new system will require significant institutional coordination and capacity-building. Professionalising the public procurement workforce will also be essential to ensure effective and consistent application of the new framework across all levels of government. However, the reform does not anticipate an effort towards professionalisation, as recent reforms in other LAC countries, such as Chile, Costa Rica or Peru, do. As with the Public Works Law, exemptions for certain entities, such as the armed forces and public enterprises such as PEMEX, will limit the overall impact of the reform, and should therefore be removed.
Mexico’s sustainable taxonomy can also be a valuable tool for improving the quality and effectiveness of public spending by directing resources toward projects with clear and measurable impacts. The taxonomy is a classification system that identifies economic activities based on their environmental and social impact (OECD, 2022[8]), providing a common framework for evaluating the impact of spending. Recent progress includes the mapping of Mexico’s taxonomy to that of the European Union to enhance interoperability. Good progress has also been made in applying the taxonomy ex-post to classify a growing share of public expenditures. This has provided greater insight into the composition and outcomes of public spending. The next challenge is to integrate these metrics ex ante into budget preparation, so that they guide the prioritisation and allocation of spending before resources are committed. Experiences from other countries, such as France and Ireland with their green budgeting frameworks, show that ex ante integration can ensure resources are directed toward projects with the highest impact. Doing so would support more strategic decision-making, improve the consistency and transparency of the budget process, and strengthen the link between spending and outcomes.
Public support to PEMEX, the state-owned oil company, has continued to increase and is sizeable. Government support has taken the form of tax relief measures, debt relief and capital injections and investment programs, and represented around 1.1% of GDP in 2024 (IMF, 2024[9]). Nevertheless, its financial situation remains difficult, as output has continued to decline, and liquidity has been insufficient to meet debt obligations, both financial and with suppliers, and maintain ongoing projects. As recommended in previous OECD Economic Surveys of Mexico, any additional support to PEMEX should be made strictly conditional on improvement to its business strategy and governance structure with the aim of limiting further fiscal costs. A new 2025-2035 Strategic Plan for PEMEX was announced in August 2025, aiming at turning PEMEX self-sufficient by 2027. The plan reestablishes the possibility of PEMEX forming partnerships with private sector entities and includes also financial operations to smooth the debt maturity profile. Fostering private partnerships is a positive step but the new projects could take around seven years to yield results, and further changes are needed to improve more significantly the company's short-term financial position. The process of forming partnerships should be transparent and open to international investors. Financial operations to smooth debt maturity can lower PEMEX’s financing costs, but they also create contingent liabilities for the sovereign, underscoring the need for prudent execution. Strictly conditioning support to specific performance metrics can encourage clearer operational improvements. The OECD Guidelines of State-Owned Enterprises can be a useful framework to advance deeper governance reforms, including ensuring that all board members are appointed based on relevant qualifications, eliminating political interference in board processes and regularly carrying out evaluations to appraise their performance. PEMEX should also be subject to the same high-quality accounting, disclosure, compliance and auditing standards as listed companies. Transitioning to accrual accounting would significantly strengthen financial transparency and oversight. It would provide a more complete picture of PEMEX’s financial position by recognising liabilities and unpaid obligations as they arise, rather than only when cash transactions occur. This would allow earlier identification of liabilities and improve the federal government’s capacity to monitor contingent liabilities and assess fiscal exposure. Over time, it would also contribute to better governance, clearer performance evaluation and a more credible financial reporting framework.
1.4.4. Increasing revenues to maintain fiscal prudence and respond to spending needs
Gradually mobilizing additional tax revenues is essential to maintain fiscal prudence while addressing spending needs in areas that will boost productivity and medium-term growth. In recent years, the government has made progress in tax administration, with measures to curb evasion and fraud bolstering collection. The 2026 budget also introduced increases in taxes on sugary drinks and tobacco, expected to yield an additional 0.1% of GDP. Yet Mexico’s tax receipts remain low by international standards. At 18.3% of GDP in 2024, Mexico’s tax-to-GDP ratio is the lowest among OECD countries (Figure 1.25), and below regional peers including Costa Rica, Colombia and Chile.
% of GDP, 2024 or latest
Note: LAC is a simple average of Chile, Colombia, Costa Rica, Argentina, Brazil, and Peru. Data refer to 2023 for Australia and Japan.
Source: OECD Revenue Statistics (database).
The government continues to prioritise strengthening the tax administration as the primary avenue to boost revenue collection. Ongoing efforts include simplifying and digitalizing tax payment procedures, using digital tools to detect filing inconsistencies and combat tax evasion, and expanding taxation of low-value shipments from e-commerce platforms. Strengthening customs administration could further enhance revenue by an estimated 0.8% of GDP through reduced evasion, according to government estimates. A law to improve customs administration was approved in November 2025 with the aim of narrowing existing compliance gaps by addressing under-invoicing and the misuse of simplified regimes and more robust enforcement and digital tracking systems. There is also significant potential to increase tax revenue by tackling evasion linked to oil theft. Enhancing controls over fuel distribution and curbing illicit trade in hydrocarbons could help to increase tax revenues significantly, although the exact revenue potential is difficult to quantify.
Tax revenues could also be increased by reducing tax expenditures, particularly those that disproportionately benefit high-income households. Overall, tax expenditures amount to approximately 4% of GDP, with the largest component stemming from VAT exemptions and reduced rates, which account for 1.8% of GDP (Sec.Hacienda, 2025[10]), and contribute to Mexico having the least efficient VAT system in the OECD (Figure 1.26). While such measures are often introduced with the aim of supporting low-income households, they also benefit higher-income groups and are widely recognised as poorly targeted (Thomas, 2024[11]). Tax expenditures can also make the tax system complex. Targeted transfers are a more effective way to support the purchasing power of low-income households. In Mexico, replacing VAT exemptions and reduced rates with targeted VAT refunds could increase revenue by up to 0.8% of GDP while also contributing to poverty reduction (Kotlikoff, Lagarda and Marin, 2023[12]). Mexico’s tax administration has significantly upgraded its technological infrastructure and database systems, making the targeted refund technically feasible. These refunds could be delivered through debit cards, which would also promote financial inclusion, a key pending challenge highlighted in the 2022 OECD Economic Survey of Mexico. Mexico publishes an annual report quantifying tax expenditures, which enhances transparency and is a good basis for gradually phasing out inefficient tax expenditures.
A comparison with other OECD countries suggests that Mexico is currently underutilizing some taxes in terms of the revenue they generate (Figure 1.27). Revenues are concentrated in taxes on corporate profits and general consumption through VAT, while taxes on immovable property or environmental levies play a comparatively minor role (Figure 1.28).
VAT Revenue Ratio (VRR), 2022
Note: The closer a country’s VAT system is to a “pure” VAT as a broad-based tax on all final household consumption, the closer its VRR is to 1. A VRR close to 1 can be taken as an indicator of a VAT bearing uniformly on a broad base with effective tax collection. A lower value reflects such factors as the effects of reduced rates, exemptions or a failure to collect all tax due. In the absence of a uniform assessment of the potential VAT base for all OECD member countries, final consumption expenditure as measured by national accounts is considered the closest approximation. Final consumption expenditure in national accounts in OECD countries is measured according to the UN System of National Accounts (SNA).
Source: OECD (2024) Consumption Tax Trends 2024.
Recurrent taxes on immovable property are among the most efficient and progressive forms of taxation. They create less distortions to economic activity and can deliver substantial revenues. Yet, property taxation in Mexico remains severely underutilized, as highlighted in previous OECD Economic Surveys of Mexico. They have averaged 0.18% of GDP over the past 15 years, down from 0.34% in the 1970s, far below the OECD average of 1.5%, and even below most Latin American peers. One of the main obstacles to effective property taxation is the lack of a modern, integrated cadastral system. Unlike countries such as Brazil and Colombia, Mexico does not have a national digital cadastre. Cadastral records are often fragmented across unconnected local databases or exist solely in paper format, and they are not linked to property registries. This disconnect undermines the government’s ability to verify ownership, assess property values accurately, and enforce tax obligations. Furthermore, cadastral information is not updated regularly. While most OECD countries revise their cadastral rolls every three years, updates in Mexico are infrequent and ad hoc, occurring roughly every five years. To address these challenges, the newly created Digitalization Agency has been recently tasked with the development of a National Cadastral Platform. The platform should aim to ensure interoperability across the three levels of government, integrating cadastral and property registry data into a unified national system. In addition, property tax rates are set by municipalities within ranges established by state governments, which often results in rates being kept very low for political reasons, further limiting revenue collection. Establishing federal minimum bands could help prevent a “race to the bottom” in rates among states and strengthen the revenue potential of property taxation. To enhance political acceptability, the strengthening of property taxation should take place gradually and accompanied by transitional measures to protect taxpayers from sharp increases in property tax obligations.
Note: LAC is an unweighted average of Chile, Colombia, Costa Rica, Argentina, Brazil, and Peru. OECD is an unweighted average of all member countries with available data.
Source: OECD Global Revenue Statistics (database).
% of total tax revenue, 2024
Note: L AC is a simple average of Chile, Colombia, Costa Rica, Argentina, Brazil, and Peru. OECD and LAC average refer to 2024 or latest.
Source: OECD Revenue Statistics in Latin America and the Caribbean (database); and OECD Revenue Statistics (database).
Environmental taxation remains also underutilised in Mexico, limiting its potential to both support climate goals and mobilize additional revenue. The country introduced a carbon tax in 2014, but it applies only to a limited set of fossil fuels and at relatively low rates, with key sectors such as natural gas and gasoline effectively exempt. As a result, Mexico’s effective carbon rates remain below OECD levels. In 2023, the average net effective carbon rate (including fuel excise taxes and explicit carbon pricing) was EUR 21.6 per tonne of CO₂, compared with an OECD average of EUR 76 (OECD, 2024[13]).Broadening the carbon tax base and increasing rates in line with environmental externalities could strengthen price signals for emissions reduction while raising more revenues (see also Chapter 3). Expanding the carbon tax to all fossil fuels and aligning rates with carbon content could increase revenue by 1.8 % of GDP (OECD, 2024[13]). Revenues could be used to support vulnerable households, finance green infrastructure, or offset other more distortionary taxes.
Taxes related to the purchase, ownership and usage of vehicles have become an important source of tax revenue for many OECD governments and are increasingly designed to influence consumer behaviour for environmental purposes. In Mexico, taxes on vehicle ownership or use (tenencia) were transferred from the federal government to the states in 2012. Currently, less than half of the 32 states collect vehicle taxes and collection is falling over time. Estimates from the Finance Ministry suggest that collection could increase by 0.3% of GDP with a more comprehensive collection through states. The federal government could enhance incentives for states to collect and green this tax, for example by allocating higher federal transfers to those states doing so. It could also establish minimum tax rates at the federal level to avoid the race to the bottom among states occurring in some parts of Mexico. Restructuring the vehicle tax so that it considers environmental performance would also incentivise the use of more energy-efficient vehicles, as exemplified by several OECD countries, such as France and Israel.
There is also potential to raise more revenues through health-related taxes. Mexico has recently announced increases in taxes on sugary drinks and tobacco, positive steps to both increase revenues and support better health outcomes. Ensuring that tobacco taxes remain indexed to inflation and real income growth also beyond 2030 would help preserve its effectiveness. There is also room to strengthen the taxation of alcoholic beverages. Enhancing the existing tax on consumption of alcohol beverages can both increase revenue with no regressive effects and improve its effectiveness in protecting public health. The tax is currently based on an ad-valorem system with different quotas according to alcoholic content. As a result lower quality beverages with high degrees of alcohol, given the very low cost of production, are among the cheapest on the market, thus, curtailing the objective of the tax of improving health conditions (Rodríguez Quinto and Foncerrada Pascal, 2022[14]). Changing it to a system in which the alcoholic content of the tax is directly taxed could increase revenue by 0.2% of GDP (Rodríguez Quinto, Sánchez Gómez and Foncerrada Pascal, 2025[15]), with higher collection coming from higher-income households, while favoring the consumption of lower alcohol drinks with a positive impact on health conditions.
Improving governance is essential to boost growth and productivity and remains a long-standing challenge in Mexico. Weak rule of law, corruption, regulatory uncertainty and high levels of crime can weigh heavily on investment and economic dynamism. Strengthening the rule of law and judicial effectiveness would enhance contract enforcement and investor confidence. Preserving a stable and predictable regulatory framework is equally important to provide clarity for long-term investment decisions. At the same time, reducing corruption and reinforcing anti-crime strategies are critical to improve the business environment and safeguard citizens’ security.
1.5.1. Recent reforms to the judiciary and sector regulators
Mexico has started to implement a significant judicial reform, according to which all judges nationwide will be elected by popular voter. According to the government, the reform aims to reduce corruption and restore public trust in the justice system. This reform is fully reshaping the judiciary. The roll out of the reform started on 1 June 2025, with the election of nine members of the Supreme Court of Justice, five members of a newly created Judicial Disciplinary Tribunal and half of the federal circuit and district court judges. Voter turnout was 13%. The remaining judicial positions will be filled in 2027. Mexico’s reform is unprecedented worldwide, as it is the only country that is electing all judges via popular vote, which implies a risk of undermining judicial impartiality (USIP, 2024[16]). According to several national and international observers, an electoral process without clear safeguards against political campaigning or party endorsement could expose the judiciary to increased political influence (FreedomHouse, 2024[17]). A judiciary perceived as vulnerable to political influence may deter investment, particularly in politically sensitive sectors or those likely to face disputes involving State actors. Large multinational companies may rely on international arbitration mechanisms to manage legal risks, but smaller domestic firms, without access to such channels, could be more affected. While some professional qualifications were required to stand for election, there remains a significant risk that newly elected judges, many of whom lack significant prior judicial experience, will face a steep learning curve, slowing the functioning of the judiciary. To mitigate these risks, comprehensive and timely training programs could be deployed through the Federal Judicial Training Institute (Escuela Federal de Formación Judicial). The Institute can also play a critical role in strengthening the integrity of the new judiciary by providing robust training on judicial conduct, ethical standards, and accountability. In parallel, strengthening eligibility criteria for future judicial elections would help ensure that candidates possess sufficient experience and expertise before taking office. Although a reform of the judiciary was needed to improve access to justice, the current initiative does not directly address several long-standing challenges. These include the backlog of cases across federal and local courts, limited enforcement capacity of court rulings, weak protections for vulnerable groups or with specific legal and justice needs, such as women, and insufficient investment in digital and administrative infrastructure. Digital case management systems, electronic evidence submission and online court proceedings can expedite case resolutions and enhance transparency and accessibility, as recommended in 2024 OECD Economic Survey of Mexico.
Independent competition authorities and sector regulators are also essential to fostering private investment, as they help ensure open market access, prevent abuse of dominant positions and provide predictable, rules-based oversight of key economic sectors. In late 2024, a far-reaching constitutional reform eliminated from constitution the autonomy of several independent regulators, including the Federal Economic Competition Commission (COFECE), the Energy Regulatory Commission (CRE), the National Hydrocarbons Commission (CNH), and also of the National institute for transparency (INAI), the National Council for the Evaluation of Social Development Policy (CONEVAL), and the National Commission for the Continuous Improvement of Education (MejorEdu). Their responsibilities were transferred to ministerial departments, reducing their formal independence and subordinating them to the executive. Under the new framework, competition and sectoral regulators have varying degrees of administrative and budgetary autonomy. This institutional shift has raised concerns about regulatory autonomy, transparency and the effective implementation of policies.
The highest level of autonomy is now granted to the newly created National Antitrust Commission, that replaces COFECE, the former independent competition authority. It is classified as a decentralized agency, with its own legal personality and greater control over budget and operations. Other sector regulators function now as deconcentrated agencies, with closer administrative and budgetary ties to their respective ministries (see also chapter 3 for energy regulator and chapter 4 for the telecommunications regulator). Safeguarding the credibility and effectiveness of these institutions will depend on insulating decision-making from political influence, by for example, decoupling board members' mandates from the political cycle, strengthening the technical requirements for appointments and ensuring adequate and predictable budgets. The reform also stipulates that economic activities and public companies considered “strategic” are excluded from competition law oversight. In Mexico, “strategic sectors” have traditionally encompassed activities linked to national sovereignty and security, such as hydrocarbons, electricity, and defence, However, their scope has been gradually broadened through executive decrees and now also includes, for example, state-provided internet services. This discretionary power to expand the definition of strategic sectors raises concerns that large areas of the economy could be excluded from competitive oversight, potentially entrenching monopolies, reducing investment, competitiveness and hindering job creation. Clearer definitions of “strategic sectors” that remains narrowly focused and aligned with international practices and applied transparently will be critical to preserve investor confidence and facilitate new investment and job creation.
1.5.2. Redoubling efforts to reduce corruption
Corruption perceptions in Mexico remain well above those observed in OECD and regional peers (Figure 1.29, panel A and B). In 2016 Mexico launched its National Anti-Corruption System, which includes a specialised anti-corruption prosecutor's office, an independent administrative tribunal, and a Citizen Participation Committee, along with parallel efforts at the state level. However, these initiatives have not yet delivered significant results. One likely reason is that key positions in anti-corruption institutions were not filled, weakening their operational effectiveness. The capacity to investigate and prosecute corruption cases, particularly at the subnational level, has remained limited. Of the 31445 cases opened by state-level anti-corruption prosecutors, only 243 resulted in a sanctioning sentence (less than 1%). At the current juncture a comprehensive evaluation of the reasons why the National Anti-Corruption System has not achieved its intended outcomes appears warranted.
Recent efforts are shifting toward a stronger emphasis on corruption prevention. These include improved training and ethical standards, as well as enhanced internal control mechanisms, particularly for positions exposed to higher corruption risks. In addition, work is underway to further regulate lobbying activities, an integrity area where Mexico lags most OECD countries (Figure 1.29, panel C), since current regulations only cover interest activities carried out before members of the Chamber of Deputies and the Senate and are set out in the internal rules of both houses rather than in a primary law.
Note: Panel B shows the point estimate and the margin of error. Panel C, Corruption RMA = Corruption risk-management and audit. Panel D shows ratings from the FATF peer reviews of each member to assess levels of implementation of the FATF Recommendations. The ratings reflect the extent to which a country's measures are effective against 11 immediate outcomes. "Investigation and prosecution¹" refers to money laundering. "Investigation and prosecution²" refers to terrorist financing. LAC is a simple average of Chile, Colombia, Mexico, Argentina, Brazil, and Peru.
Source: Transparency International (database); World Bank Worldwide Governance Indicators (database); OECD Public Integrity Indicators (database); and OECD calculations based on OECD Financial Action Task Force (FATF).
Mexico has gradually strengthened its anti-money laundering framework, but some gaps remain (Figure 1.29, panel D). According to the latest Financial Action Task Force assessment, the country lags in implementing preventive measures and securing effective investigation and prosecution. Customer due diligence remains uneven across sectors, and beneficial ownership data is often incomplete. Strengthening supervision and enforcement, particularly in high-risk sectors such as real estate, legal, and accounting services, would improve compliance. To improve investigation and prosecution outcomes, authorities should expand financial intelligence capacity, promote inter-agency coordination, and ensure that financial investigations routinely accompany criminal cases.
1.5.3. A new security strategy is in place to fight crime
Crime remains high (Figure 1.30) and continues to be a major concern for firms (Figure 1.31) and citizens. Crime limits investment and is estimated to reduce growth by around 1 to 2 percentage points annually (IMF, 2024[18]; IDB, 2024[19]). Acknowledging this challenge, Mexico has recently put in place a new security strategy, placing stronger emphasis on intelligence gathering and investigative capacity. A central element is the transformation of the National Intelligence Centre, which has shifted its focus from political intelligence toward public security. The strategy builds on the model implemented in Mexico City during President Sheinbaum’s tenure as mayor and also strengthens coordination between the Ministry of Security, the Attorney General’s Office, and the 32 states, supported by daily coordination meetings. According to the government, these measures, introduced in September 2024, have already contributed to a 26% reduction in the daily average number of homicides. Official statistics also report declines across some crime categories, with the notable exceptions of extortion and missing persons.
Homicide rate, per 100 000 people
Note: LAC is a simple average of Chile, Colombia, Costa Rica, Argentina, and Brazil. OECD is a simple average of 29 OECD member countries with available data.
Source: INEGI; World Development Indicators (database); and data UNODC (database).
Extortion is increasingly used by criminal groups to infiltrate and control segments of the formal economy, particularly in retail, transport, and construction. A key obstacle to addressing this crime is high impunity, driven by widespread underreporting. Many victims refrain from filing complaints due to fear of retaliation or lack of trust in local authorities. Expanding and simplifying accessible, anonymous reporting mechanisms would represent an important step forward, as they could empower victims and improve detection. Legal reforms could further strengthen the response, notably by reclassifying extortion as a federal crime and allowing authorities to investigate and prosecute cases even in the absence of a formal victim complaint.
% of responses of private sector economics specialists identifying uncertainty and safety as risks for economic growth
Note: Specialists were asked the following question: "In your opinion, what are the three principal factors that will limit growth in economic activity over the next six months?"; they could select up to three factors.
Source: Banxico Encuestas Sobre las Expectativas de los Especialistas en Economía del Sector Privado (database).
Further reductions in crime will require sustained efforts to strengthen intelligence capabilities. This implies scaling up financial, technological, and human resources. A step in this direction is the planned creation of a National Public Security Academy, with the aim of training 2500 new agents. However, efforts at the federal level will need to be replicated in the states, where institutional capacity varies. Strengthening subnational security institutions, including state governments, police forces, and prosecutors, is essential. Enhancing the role of the Ministry of Security as a regulatory authority in public security could help advance progress at state level. Higher budget allocations at both the federal and state levels would also be needed. Mexico’s federal spending on public security and justice amounted to 0.7% of GDP in 2024 below the OECD average of 1.8% and the Latin American average of 1.5%. Part of the additional financing should be directed toward improving data collection, including its frequency and disaggregation. This would allow to better track security dynamics and further support evidence-based policy design and implementation.
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