The FINANCIAL -- The Mexican economy keeps growing, mainly thanks to its strong economic policies, even as the fate of the country’s trade deal with North America remains unclear.
However, Mexico would still benefit from carrying out reforms for stronger and more inclusive growth. The main areas to tackle are inequality, corruption, obstacles holding back firms’ productivity, and tax collection to allow more room for public investment, according to IMF.
The following five charts show why IMF suggests reforms in these areas.
1. The IMF has revised down slightly the near-term growth forecast for the Mexican economy compared to the 2016 projections. Mexico’s growth outlook at 2.1 percent for 2017 and 1.9 percent for 2018 is slightly lower than previously forecast, given uncertainty related to the renegotiation of the North American Free Trade Agreement (NAFTA).
2. Mexico should strengthen its tax collection: it stands out among its peers in Latin America and the Organization for Economic Co-operation and Development (OECD) with its low share of tax revenues, which constrains public spending. The country could invest more in public infrastructure—an area that has been neglected—if it improved its tax collection, closed tax avoidance loopholes, and made spending more efficient.
3. Poverty and inequality remains, with poverty affecting more than 40 percent of Mexico’s population. Inequality, measured by the Gini coefficient (a Gini of 0 represents perfect equality), remains close to 0.5, against 0.3 on average in the OECD member countries.
4. Strengthening the rule of law and fighting corruption should be a priority for Mexico. Combating corruption would increase productivity by fostering investment in the most productive firms and reducing rent-seeking behavior. Swift implementation of all elements of national and state level anti-corruption plans are therefore critical to lifting potential growth.
5. Informality is high, and access to services such as electricity and financial products remains uneven. Doubling down on the Pacto por Mexico (a reform agreement endorsed by the major Mexican political parties in 2012) would especially benefit southern states, and help boost productivity.