Economic Policy Reforms 2019

Mexico

The gap in GDP per capita relative to the upper half of OECD countries remains large due to low productivity levels. Average hours worked are among the highest in the OECD but low labour market participation of women hinder the contribution of labour to growth.

Absolute poverty has declined in recent years, however, relative poverty is still high. Significant inequalities persist in incomes and wealth as well as inequality in opportunities in jobs, housing and education. They also have a strong territorial dimension, impacting negatively on Mexico’s growth potential. Mexico has made progress to protect the environment through international commitments, and has moved away from transport fuel subsidies, increased excise taxes on transport fuels and introduced a new carbon tax. However, emissions from energy and transport sectors continue to increase rapidly.

In recent years, Mexico has adopted a number of structural reforms to boost productivity growth. Full and efficient implementation and follow-up will be crucial to bear the full benefits of these past reforms.

Although the creation of formal jobs has outpaced informal job creation, high informality remains a drag on productivity, due to an inefficient allocation of resources and insufficient workers’ training. Informality is also a major driver of persistent high inequalities and poverty, which extend beyond working lives.

Growth performance, inequality and environment indicators: Mexico

Source: Panel A: OECD, Economic Outlook Database; Panel B: OECD, Income Distribution and National Accounts Databases; United Nations Framework Convention on Climate Change (UNFCCC) Database and International Energy Agency (IEA), Energy Database; Panel C: OECD, National Accounts and Productivity Databases.

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Policy indicators: Mexico

Source: Panel A: OECD, PISA and Education at a Glance Databases; Panel B: OECD, Services Trade Restrictions and FDI Regulatory Restrictiveness Index Databases

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Beyond GDP per capita: Mexico

Source: Panel A: OECD, Income Distribution Database, World Bank, World Development Indicators Database and China National Bureau of Statistics; Panel B: OECD, Environment Database.

Note: For the explanation of the sets of indicators above, please go to the metadata annex at the end of this chapter.

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Mexico: Going for Growth 2019 priorities

Raise education outcomes. Poor education outcomes hamper growth and contribute to persistent inequalities.

• Actions taken: The implementation of reforms is progressing. Teacher evaluation has taken place in most States and merit-based access to school positions, including those of directors and supervisors, has been awarded in 2017 and 2018. A new curriculum was introduced in the academic year of 2018-2019, aiming at providing all students with the skills needed in the 21^st century. A government program aimed to improve education infrastructure (Escuelas al 100) has also been implemented, benefitting 24 000 schools to date. Enrolment rates in early childhood education and care continue to expand.

• Recommendations: Put solving high inequalities in access to good quality education at the centre of education policies. Increase participation in early childhood and care in low coverage regions and by children from disadvantaged backgrounds. Improve quality in early childhood education and care by increasing educational requirements and training of care assistants working with very young children and by lowering child-to-staff ratios. Continue improving school infrastructure and pedagogical material, particularly in disadvantaged schools and focus on guaranteeing adequate training to teachers of all schools. Develop incentives to attract good teachers and school directors to disadvantaged schools. Increase education spending on pre-primary, primary and secondary education. Develop and expand vocational and technical education.

Improve institutional quality. Low institutional quality hampers doing business by lowering the efficacy of contracts and the security of property rights, reducing investment and employment growth.

• Actions taken: Oral trials are being extended to commercial disputes nationwide.

• Recommendations: Finalise the rollout of adversarial trials across the country. Continue training of judging and lawyers in the new oral trial system. To tackle high impunity rates, implement reforms to establish an independent and efficient prosecutor general. Complete the setting up of anti-corruption systems at the state-level and ensure consistency with which regulations are applied. Establish a comprehensive public sector integrity strategy, including by strengthening protection for whistle-blowers and improving law enforcement.

1Reduce high informality. High informality persists and constitutes a drag on productivity and economic growth and is also a source of large inequalities in income and access to public services. Geographical and gender differences in informality levels are very high.

• Recommendations: Enhance the formalisation incentives in the Fiscal Incorporation Regime by reducing social security contributions for low-skilled workers. Improve the quality of public services including good quality early childhood education and care. Simplify tax and regulatory systems to ease firms’ compliance costs. Strengthen enforcement by redirecting more resources to labour inspectorates.

Reduce barriers to foreign direct investment. Barriers to foreign direct investment in services, including transportation and infrastructure, hamper rapid capital accumulation, knowledge diffusion and export competitiveness.

• Actions taken: In 2017 Mexico increased the cap on foreign equity in air services from 25% to 49%. Private sector participation in both the oil and electricity sectors has been implemented in 2017, whereas before participation was very limited.

• Recommendations: Continue do ease FDI restrictions in sectors that are key for downstream industries and export competitiveness such as transport, logistics and banking. Improve the business climate to attract FDI including by improving security and the rule of law.

Reduce barriers to entry and competition. Barriers to business entry persist, limiting investment and growth.

• Actions taken: The retail fuel market was opened up in 2017. In 2018 a FinTech law was adopted to regulate the entrance of new participants in the financial system by endorsing international standards of protection to investments in the sector, included in trade agreements and other international instruments. In May 2018 the general law for regulatory improvement has been approved, imposing regulatory improvement measures at the sub-governmental level. The mandate of CONAMER, the regulatory improvement agency, has been extended to the sub-national level while the Federal Competition Commission (COFECE) was reformed, strengthened and its autonomy was improved in the recent years.

• Recommendations: Promote entry of formal firms by facilitating registration procedures, and reducing red tape at the local level, including by implementing the general law of regulatory improvement (Ley General de Mejora Regulatoria). Develop a database listing all administrative procedures for all business across government levels. Facilitate access to public procurement for SMEs by standardising rules, procedures and contracts between and across levels of government.