On October 30, the Executive Board of the International Monetary Fund (IMF) completed its Article IV consultation and mid-term review under the Flexible Credit Line (FCL) Arrangement with Mexico. The current two-year FCL arrangement for Mexico, amounting to approximately US$35 billion, was approved on November 15, 2023. Mexican authorities have expressed their intention to treat this arrangement as precautionary.
The Mexican economy is experiencing a slowdown in economic activity. Private consumption and investment are decelerating, and employment growth is also slowing. Growth is expected to decrease to around 1½ percent this year due to capacity constraints and restrictive monetary policy. Inflation pressures are diminishing, with expectations that inflation will reach Banxico's target of 3 percent by 2025.
The fiscal deficit is projected to increase significantly in 2024, raising gross public sector debt to about 58 percent of GDP by year-end. However, authorities plan a fiscal consolidation in 2025 to reduce the deficit below 3 percent of GDP over the medium term. Banxico has begun easing monetary restraint gradually this year.
Mexico maintains strong financial buffers and oversight, with high capital and liquidity levels in its financial system. The current account deficit narrowed in 2023 but is expected to widen slightly in 2024 as imports surpass exports.
First Deputy Managing Director Ms. Gopinath stated: "The Mexican economy is decelerating and inflation pressures are receding... Mexico’s macroeconomic policies and institutional policy frameworks remain very strong."
Despite strong policies, Mexico faces external risks related to U.S. economic dynamics and global market conditions. The FCL arrangement provides insurance against these risks.
Executive Directors noted Mexico's track record of strong policies contributing to easing inflation pressures and maintaining a robust external position. They emphasized the need for sound macroeconomic policies and reforms for sustained growth while ensuring fiscal sustainability.
Directors supported fiscal sustainability efforts, including a significant fiscal consolidation in 2025, comprehensive tax reform, improved tax administration, and ambitious pension reforms. They also stressed the importance of conditional support for Pemex based on viable strategies.
Banxico's monetary policy response was commended for enabling disinflation and anchoring inflation expectations. Directors advised gradual monetary easing based on data dependency.
The resilience of Mexico's financial system was acknowledged with emphasis on supervisory attention on loan concentration and sovereign debt exposure.
Directors agreed that Mexico meets FCL qualification criteria due to its strong macroeconomic policies and frameworks. They endorsed treating the arrangement as precautionary given high external risks.