Mexico Overview

  • Gross Domestic Product (GDP) growth slowed to 2 percent in 2017 as uncertainty, including that arising from the ongoing North American Free Trade Agreement (NAFTA) renegotiations and the electoral process, depressed investment. Significant tightening of fiscal and monetary policy in recent years also weighed on domestic demand. Private consumption, however, has held up reasonably well despite the fall in real wages associated with an inflationary spike in 2017. 

    A strong recovery of external trade created a vigorous contribution to GDP growth. Increased external competitiveness derived from the accumulated currency depreciation and strengthened U.S. industrial production have been invigorating Mexican exports.

    The pass-through of currency depreciation to inflation took hold in 2017, and together with the liberalization of gasoline retail prices and an increase in the excise tax on fuel, helped drive up annual inflation to 6.8 percent by end-2017, the highest level in 16 years. This prompted the Central Bank to resume its monetary tightening cycle in late-2017 and early-2018, leaving the policy interest rate at 7.5 percent by end-February 2018.

    Aided by a significant contribution from Central Bank profits, amounting to 1.5% of GDP, the public sector achieved a primary surplus and comfortably met its 2017 deficit target. This was sufficient to put the debt-to-GDP ratio on a declining path. Over the next couple of years, the country is likely to continue recording primary surpluses, meeting the 2.5 percent overall deficit target in accordance with the fiscal rule. This should be sufficient to marginally reduce the debt-to -GDP ratio.

    As policy uncertainty relating to NAFTA renegotiations and the political electoral cycle eases, investment growth is expected to accelerate from late-2018 onwards. This should support a pick-up in economic growth over the forecast period towards its long-term potential rate. Implementation of the energy reform has been successful in attracting private participation to the sector, and the downward trend in investment and production in the oil sector is expected to be reversed, boosting potential output growth.

    Barring further major currency depreciation, inflation is expected to moderate through 2018 to approach Banco de Mexico’s upper tolerance band of 4 percent by the end of the year, and the 3 percent target rate during 2019. This should allow the Central Bank to ease monetary policy, at least relative to the US, from late-2018 or early-2019, thereby helping underpin a resurgence in investment. 

    Last updated: April 16, 2018

  • The Country Partnership Strategy (CPS) FY14-FY19 for Mexico—which was jointly prepared with the government—set out a country engagement based on a development solutions approach that delivers a customized package of WBG financial, knowledge and convening services.  It 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.  The four key areas of engagement supported by the CPS are:

    ·         unleashing productivity;

    ·         increasing social prosperity;

    ·         strengthening public finances and government efficiency; and

    ·         promoting green and inclusive growth.

    The Bank’s financial engagement focuses mainly on: social protection and education programs — from early childhood development to upper secondary level; a green and inclusive growth agenda integrated by energy, environment, water, agriculture and transport projects, and financial inclusion programs. The active portfolio as of end-March 2018, was comprised of 17 projects (including 4 stand-alone Global Environmental Fund, GEF), totaling around US$2.5 billion in net commitments. This includes four operations approved by the Board in FY18 totaling US$ 406 million: Strengthening Entrepreneurship in Productive Forest Landscapes (US$ 56 million), an Additional Financing for the Social Protection System project (US$300 million), an Additional Financing operation in the energy sector (US$ 50million IBRD + US$ 5.8 million GEF) and a stand-alone GEF project, supporting productive landscapes (US$ 21.9million).

    The Bank has a grant portfolio of approximately US$ 291 million that comprises 47 active grants supporting mainly activities in the areas of environment and energy. This portfolio includes, among others, a large Clean Technology Fund (US$200 million) implemented in conjunction with the national Urban Transport Program project, two Forest Investment Program (FIP) funds (US$ 42 million) and a recently approved Recipient Executed Trust Fund in strengthening capacity for forestry dependent people – Mexico Dedicated Grant Mechanism for Indigenous People and Local Communities (US$ 6 million). Through a strategically aligned knowledge program, the WBG also provides support to Mexico. Timely inputs have been provided in areas such as climate change, urban development, water and transport, among others.

    Last updated: April 16, 2018

     

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

    Subnational development. The World Bank is working closely with the Government of Oaxaca, one of the poorest States in Mexico, supporting the water sector through the first Program for Results approved for the country, which also happened to be the first sub-national loan to Oaxaca. Through a Memorandum of Understanding—that included financial, knowledge and convening services in multiple sectors, the Bank 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.

    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.

    Climate Change. The Coastal Watersheds Conservation Program aims to promote integrated environmental management of selected coastal watersheds as a means to conserve biodiversity, contribute to climate change mitigation, and enhance sustainable land use.  The project currently supports the implementation of 28 Sustainable Forest Management sub-projects in the Gulf of Mexico region and three sub-projects in the Gulf of California region.

    Social Protection. In response to the Government’s intention to better link its social protection system to productive programs, the Bank has contributed to the re-design of Mexico’s conditional cash transfer (CCT) program, PROSPERA.  The Bank’s contribution refers to: linking the poor to a broader set of income generating programs and to better targeting of the supply of social programs to areas and beneficiaries with the greatest needs.

    Last updated: April 16, 2018

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

     

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LENDING

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

*Amounts include IBRD and IDA commitments


PHOTO GALLERY

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Additional Resources

Country Office Contacts

MEXICO +5255 5480-4200 (Visits by appointment)
Insurgentes Sur No. 1605, Piso 24 Col. San José Insurgentes, México 03900, D. F.
bmmexico@worldbank.org
USA +1 202 473-1000
1818 H Street NW, Washington, DC 20433
bmmexico@worldbank.org