Overview

Economic growth is exhibiting a modest recovery after two years of cyclical weakness, averaging 1.4% and 2.1% in 2013 and 2014, respectively, but still below potential output growth (at 2.5%).  Growth was led by manufacturing exports, largely emanating from a double digit increase in the automobile sector for the fifth consecutive year. Domestic demand is lagging, with private consumption dragged by low consumer confidence and limited wage growth. Private investment has shown more dynamism recently, from low levels in 2013.  

Economic activity is expected to accelerate through 2017, with GDP growth strengthening from 2.9% in 2015 to 3.5% in 2017.  Robust growth in the U.S. will support a continued strong performance of manufacturing exports that is expected to translate into a gradual recovery of domestic investment and consumption.

Anticipating a longer-lasting drop in oil prices, the government has already announced spending cuts by 0.7% of GDP in the budget for 2015 and plans further consolidation of public spending in 2016.  Lower public spending will have a dampening impact on the pace of economic growth, despite the confidence that fiscal discipline instills on economic agents.

 Growth has been weaker than expected and there has not been a strong connection between growth and poverty reduction. The cause of this can be found in the job market as there have not been enough jobs nor enough jobs that pay adequate wages created in recent years. There has also been an increase in the labor force—due to demographic change, net-zero migration to the United States and increased female labor force participation—that the economy has not been able to absorb.  On the positive side, both public transfers, particularly in urban areas, and a lower dependency ratio have contributed to lower poverty.

The Mexican government has made progress in its structural reforms agenda in the areas of labor, education, competition policy, financial sector, telecommunications and energy sector legislation, aimed at raising productivity, competitiveness and potential output growth.  Attention is now shifting to reform implementation. The opening of the energy sector to private sector participation is particularly promising for boosting growth, as it is expected to increase the production of oil and gas and provide Mexican manufacturers cheaper energy inputs. It will be important to assess the distributional impacts of the reforms, their associated regulations and implementation. 

The World Bank Board discussed in December 2013 the Country Partnership Strategy (CPS) covering FY14–19—which was jointly prepared with the Government of Mexico. This CPS focuses on the World Bank Group twin goals (ending extreme poverty and promoting shared prosperity) and is fully aligned with Mexico's National Development Plan (NDP) for 2013–18.  It offers integrated WBG packages of financial, knowledge, and convening services in four strategic themes:

  • unleashing productivity;
  • increasing social prosperity;
  • strengthening public finances and government efficiency; and
  • promoting green and inclusive growth.

Mexico is currently IBRD’s second largest borrower in terms of exposure with US$14.8 billion in outstanding debt as of end of March 2015. The active portfolio consists of 13 IBRD projects and 7 GEF operations for a net commitment of US$2.438 billion (IBRD + GEF) and an undisbursed balance of US$1.608 billion. During FY15 the total lending volume approved was IBRD US$850 million and GEF US$16.9 million.

The Bank supports Mexico through a wide grant portfolio of approximately $282.58 million (GEFs not included), comprising 43 active grants mainly focusing on environmental and energy issues.

A few examples of the work of the World Bank in Mexico:

Disaster risk management. The Bank has been engaged with the Government of Mexico for several years in this area, and is supporting Mexico’s move towards a comprehensive strategy of preventing and managing disasters.

This strategy focuses on:

  • Risk identification,
  • Risk prevention and management,
  • Risk financing, and
  • Post-disaster reconstruction.

Climate Change. For more than a decade, Mexico has worked to develop policies to mitigate and adapt to climate change. The financial, knowledge, and convening services facilitated by the Bank have contributed to increasing the areas under environmental management by 20 percent, to improving air quality in Mexico City, and to increasing water availability.

Subnational development. The World Bank is also working closely with the Government of Oaxaca, one of the poorest States in Mexico, through a Memorandum of Understanding that includes financial, knowledge and convening services in multiple sectors, tailored to the specific needs of Oaxaca. Recently, the first Program for Results to Mexico was approved (US$55 million) which also happened to be the first sub-national loan to Oaxaca. The Bank has provided analytical and advisory services to encourage a results-based approach in public budgeting,  to promote social inclusion, reduce poverty and improve efficiency in the provision of health, education and social protection services in the state. Knowledge has also been shared with other countries through several South-South Knowledge Exchanges, for example in maternal and new-born approaches (Peru), and water supply and sanitation programs (Brazil).

Education. The World Bank has a broad engagement with Mexico on education and labor market issues, one example being the support of an early education program in rural areas, implemented by the National Council for the Promotion of Education, CONAFE.

Read about further results of World Bank projects and initiatives here.


LENDING

Mexico: Commitments by Fiscal Year (in millions of dollars)*

*Amounts include IBRD and IDA commitments