Mexico

Mexico, the second largest economy in Latin America, has remained resilient to the U.S. slowdown and the financial turmoil from Europe. Although the country is closely integrated with the U.S. industrial production sector and international capital markets; its strong fundamentals, sound policy frameworks and management have resulted in favorable financial conditions that have supported national economic activity.

According to the National Council on Evaluation of Social Development Policy (sp), the number of Mexicans living in poverty to 2010 was estimated in 52 million people. This implies that around 46.2% of Mexico’s total population lives in poverty, mainly in urban areas.

Meanwhile, extreme poverty – those living with less than $978 (US$76) a month in urban areas, and less than $684 (US$53) a month in rural areas – reduced slightly from 10.6% to 10.4% (11.7 million people).

The fact that extreme poverty held steady over that period is attributed to targeted social protection programs such as the Oportunidades conditional cash transfer initiative and the Seguro Popular universal health insurance.

President Enrique Peña Nieto took office on December 1st, 2012. The new federal administration is focusing its efforts and programs along 5 working lines included in the National Development Plan:

• “Mexico in Peace”,
• “Inclusive Mexico”,
• “Mexico with Educational Quality for all”,
• “Prosperous Mexico”, and
• “Mexico an actor with global responsibility”.

The federal government is currently working in achieving two major and long-standing constitutional reforms on energy and telecommunications, which intend to boost competitiveness and growth of these two key economic sectors in Mexico.

Mexico has a huge potential for accelerating economic growth. The country has maintained a strong growth of 3.9% during 2012. This has been supported by both external and internal demand, with a firmer expansion in services. Gross Domestic Product (GDP) is expected to grow 3.5% during 2013 with a recovery in 2014.

Long-term issues include the need to advance reforms to boost growth and to address fiscal challenges associated with a decline in oil revenues and spending pressures from health and pensions.

Although total lending for fiscal year 2013 would be significantly reduced (around US$50 million) given that the new government just took office in December 2012, the Bank is working with the new administration on the preparation of the new Country Partnership Strategy for Mexico 2013-2018, expected to go to the Bank’s board in October 2013 for discussion. 

The country team prepared a set of short policy notes that assess Mexico’s reform progress and options for policy reform in the short and medium-term. These notes are the basis for the new strategy.

These notes focus on inclusive growth and the need for Mexico to address four main challenges

• Increase productivity;
• Ensure that poorer segments of society benefit from and are able to contribute to growth;
• Combine the economic and environmental aspects of sustainable development; and
• Strengthen public finances and improve government efficiency.

The new strategy is expected to be the first to integrate shared prosperity goals. The World Bank President has recently called for the institution to focus on two overarching objectives – poverty reduction and shared prosperity. 

The long-standing $1.25 capita/day indicator will serve to monitor global progress towards poverty reduction, while the Bank has recently decided to adopt the growth rate of the bottom 40% to track shared prosperity levels among member countries.  The Shared Prosperity intends to serve as a spotlight to enhance our focus on the links between growth and equity.

As up to now, this partnership will bring the Bank and the country to work together in finding the best solutions for Mexico’s development needs. These solutions should respond and be adapted to the country’s specific challenges and resources.

The solutions might include traditional or new financial products, but also the transfer or creation of knowledge, as well as the Bank’s support to convene people, governments and institutions to work together on specific issues.

As of February 28th, 2013, Mexico was the Bank’s largest borrower, with US$14.7 billion debt outstanding, representing 10% of the World Bank’s total portfolio.

Mexico has the sixth largest portfolio under supervision in terms of net World Bank commitments, with US$5.6 billion, of which US$1.9 billion remained undisbursed.

The active portfolio comprises 14 World Bank projects. During fiscal year 2012, the Bank approved six projects for a total of approximately US$1.45 billion.

Mexico is a pioneer in World Bank’s financial products.  To manage financial risks arising from interest rate volatility, Mexico is using the option of fixing interest rates of its portfolio from a variable to a fixed-rate formulation.

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.

Commodity price risk management. The Bank is also engaging Mexico on a service that will provide an overall assessment of agriculture risk management issues and help build a comprehensive strategy that includes

• Risk identification,
• Institutional risk management analysis,
• Risk quantification and pricing, and
• The uses of innovative market-based risk financing tools, including risk transfer mechanisms.

We are also working to introduce weather derivatives instruments for the hedging of agriculture credit portfolio and guarantees (in collaboration with World Bank Treasury).

The World Bank has supported Mexico through a wide grant portfolio. By the end of February 2013, Mexico had a grant portfolio under the Bank’s supervision of US$458 million, comprising 46 active grants.

99% of this portfolio is focused on environmental and energy issues given the predominance of Global Environmental Fund (GEF)and Clean Technology Fund (CTF) funds.