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INDEX
- SUMMARY..........................................................................................................................................
- TRADE FIGURES...............................................................................................................................
- ECONOMIC INDICATORS................................................................................................................
- GROWTH............................................................................................................................................
- FISCAL RULE.....................................................................................................................................
- CONCLUSION....................................................................................................................................
- SOURCES............................................................................................................................................
Economic activity in Mexico has remained resilient despite political and economic uncertainty in the first half of 2018, caused by the lead up to the elections and the US-Mexico-Canada trade negotiations. That said, the country continues to face challenges that include raising living standards by reducing poverty and inequality, as well as addressing crime and corruption.
To tackle these challenges and boost growth in a way that will benefit a wider share of the population, reforms will need to focus on raising public investment and social spending, as well as re-invigorating the structural reform agenda with emphasis on strengthening the rule of law, fighting corruption, and reducing labor market informality, the IMF report said.
One reason why poverty rates remain high is Mexico’s meager per capita growth in recent decades. Another is that social policies have not been targeted as well as they could have been. While conditional cash transfer programs have been very effective at reducing inequality, other social programs have disproportionately benefited individuals at the top rather than at the bottom of the income distribution. Further, the redistributive role of fiscal policy—targeted government expenditures to help lower income inequality—is generally weaker in Mexico than in other members of the Organisation for Economic Co-operation Development (OECD) and could be expanded.
Talking about economics, the current year will be more complicated than its predecessor for Mexico. This is due to events which will generate uncertainty and volatility in the production activities of the country, according to several experts. The main challenges Mexico will have to face this 2018 that will keep the market in suspense are the renegotiation of the North American Free Trade Agreement (NAFTA), the impact of the tax reforms approved by the United States, and the General Election.
TRADE FIGURES
Mexico is highly dependent on foreign trade, which represented 78% of its GDP in 2016. The country has signed a dozen free-trade agreements with about forty different countries of the world. The country has been a member of NAFTA (the free-trade treaty between the United States, Mexico
Private consumption and trade with the USA drove growth in 2017 and should continue to do so in 2018 albeit at a more tempered and cautious rate as NAFTA’s future is still being discussed and presidential elections took place on July 1st. Andrés Manuel López Obrador was elected and will take office in December 2018. The talks for a modernization of NAFTA are set to be concluded before this date although it is so far unclear what will be the outcome of these negotiations. The Mexican economy and especially the manufacturing industry is highly dependent on trade with the USA. In contrast, trade with Mexico is the source of more than six million jobs in the USA. The negotiations have been a real test for Mexico’s president, Enrique Peña Nieto, who has tried to safeguard the free trade agreement and protect the rights of Mexican emigrants in the USA. However, Mr. Peña Nieto’s presidency has been disappointing overall for the population. At the very beginning of his term, ‘EPN’ concluded an alliance (Pact for Mexico) with two opposition parties to pass a constitutional reform and liberalize energy and telecommunications sectors. This attracted enthusiastic interest from international investors but the results on the country’s growth have not matched the expectations. In the meantime, Enrique Peña Nieto has been criticized for his lack of action against organized crime and rising violence. Indeed, the year 2016 saw a record surge in homicide in Mexico. In this context, ‘EPN’ and his party the PRI are said to have little chance of winning the coming presidential elections.
GROWTH............................................................................................................................................
Ambitious structural reforms and sound macroeconomic policies have ensured the resilience of the highly-open Mexican economy in the face of challenging global conditions. Yet, growth has not been inclusive enough to achieve better living conditions for many Mexican families. Disparities between a highly productive modern economy in the North and in the Centre and a lower- productivity traditional economy in the South, have increased. Mexico can reignite growth by reprioritising its public spending towards infrastructure, training, health, and poverty reduction.
FISCAL RULE
The timely tax reform introduced by the government in 2014 has raised non-oil tax revenue
collection in 2015 and 2016 by about 3 percentage points of GDP and compensated for the fall in oil-related revenues over the period. Overall public spending grew in 2016 due to the government financial support to PEMEX, growing debt service payments, and pension costs. With total revenue rising faster than expenditure, the public sector borrowing requirement (PSBR) has declined by 1.
percentage points of GDP to 3% of GDP in 2016, and is expected to reach 2.9% in 2017 and 2.5%
by 2018
The 2017 budget set the path to the return to primary surplus. Additional spending cuts of about
1.0% of GDP compared to 2016 were approved. Those cuts will fall mostly on current expenditures in communications, transportation, and tourism; education; as well as agriculture.
Mexico affirmed its commitment to global responsibility and took up the challenge of achieving the Sustainable Development Goals (SDGs). It has acted in several areas. First, a Specialized Technical Committee involving 25 federal agencies was established to develop open and transparent statistical information to monitor and enforce accountability. Second, a platform to offer citizens updated and georeferenced data on the degree of compliance for each of the SDGs has been developed. Third, forums and alliances with companies have been instituted to encourage society to embrace SDGs (HLPF, 2016). Going forward, the federal government intends to establish a high-level commission for the implementation of the SDGs with the participation of the federal and local government, civil society, academics and the private sector. The federal government would transversally incorporate compliance with the SDGs into the budget planning, boost diffusion and adoption of SDGs by local authorities, and form an Alliance for Sustainability with the private sector (HLPF, 2016).
CONCLUSION
Mexico's adoption of an open-economy model to reorient its economic policy precipitated
disparate growth and internal wealth distribution, as the control of the macroeconomic environment led to lagging social welfare indicators and increased poverty and inequality. Although Mexican social policy has sought to compensate for the deteriorating living conditions of its population, the scope of this policy is insufficient, insofar as the economic policy in place imposes limits that divert public spending towards certain target groups, leaving a broad swath of the people vulnerable. The data demonstrates that this targeted social policy has proved unable to reverse the disparities derived from the type of economic policy in effect. If we do not correct the factors that govern the current model, we risk gradually undermining the living conditions of the population and even national security.
