Mexico is the second largest economy in Latin America. The World Bank Group engagement with the country is structured around a model that provides development solutions adapted to the country, with an integral package of financial, knowledge and convening services. Read More »
Since taking office on December 1, 2012, President Enrique Peña Nieto has acted swiftly to pursue overdue reforms, which has reinforced his public standing. However, sluggish economic performance could potentially drag on the president's popularity and reduce optimism over the prospects for his reform agenda.
The country is one of the most important emerging economies and is renewing its efforts to become a leader in the region – it just became a member of the Pacific Alliance. Mexico has agreed on an ambitious and comprehensive National Development Plan, which also guides the structural reform agenda to enhance productivity.
Within the framework of an agreement with the two largest political opposition parties—the “Pact for Mexico”— reforms of the labor, education, telecommunication and competition policy have been enacted already and financial sector, energy and fiscal reforms are planned for later this year. The government's tax reform initiative, recently unveiled, aims for better funding for economic development and social programs.
The main test of the administration's reformist commitment will be the energy reform, which aims at increasing investment in oil production, refining, transportation, storage and distribution of hydrocarbons.
President Peña has committed himself to three main goals on citizen security front: to contain the wave of violence, restore peace and order, and concentrate efforts on reducing the incidence of the most violent crimes. However, nine months after he took office, the approach of the previous administration persists in some areas, and some doubts remain over the capacity of the government to turn the tide of violence and insecurity.
The Mexican economy recovered from the severe contraction generated by the 2008-2009 global financial crisis as the economy experienced an average annual growth of 4.3 % between 2010 and 2012. More recently, weak external demand has led to stagnation in growth and prompted the Ministry of Finance to lower its growth projection for 2013 to 1.8 %.
Mexico experienced a surge in capital flows and despite significant volatility in financial variables seems to be in a sound position to deal with moderation of flows upon withdrawal of monetary support in the U.S. A flexible exchange rate, a modest current account deficit, international reserves at US$170 billion and an IMF FCL of US$73 billion should provide significant protection against external shocks.
The adoption of structural reforms in the areas of labor legislation, education, telecommunication and competition policy, financial sector, energy and tax policy is expected to enhance potential output growth, currently estimated around 3 percent, by about a full percentage point through additional investments and eventually through higher levels of productivity that these reforms are expected to unleash.
The Mexico Country Partnership Strategy FY14-FY19 is currently under preparation and is expected to be approved on December 2013.
The strategy, designed to provide real solutions to Mexico’s main development challenges, is aligned with the World Bank’s two core goals:
Contributing to ending extreme poverty and
promoting shared prosperity
It is also fully aligned with the goals of Mexico’s National Development Plan 2013-18. The document focuses on inclusive growth and the need for Mexico to address four main challenges:
ensure that poorer segments of society benefit from and are able to contribute to growth;
combine the economic and environmental aspects of sustainable development;
strengthen public finances and improve government efficiency.
The World Bank work is structured around a model that fully provides customized development solutions utilizing a package of financial, knowledge and convening across all arms of the institution.
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.
As of July 31, 2013, Mexico was the Bank’s first largest borrower with US$14.92 billion debt outstanding, representing 10.4 percent of the Bank’s total portfolio. Mexico is among the 10th countries with the largest portfolio under supervision in terms of net Bank’s commitments. The active portfolio comprises 13 projects.
The World Bank is also supporting Mexico through a wide grant portfolio of approximately US$455 million comprising 40 active grants mainly focusing on environmental and energy issues.
Mexico is constantly engaged in knowledge exchanges and the country is widely recognized as a global knowledge leader, pioneer in climate change policy in particular. There is a strong potential for global knowledge brokering with the Bank as the global connector.
Mexico is using the option of fixing interest rates of its portfolio from a variable to a fixed-rate formulation to manage financial risks arising from interest rate volatility.
A few examples of the work of the World Bank in Mexico:
Climate Change. For more than a decade, Mexico, with World Bank support, has worked to develop ambitious policies to mitigate and adapt to climate change. The financial, knowledge, and coordination 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.
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.