Mexico’s robust macroeconomic policy framework has supported moderate growth despite several headwinds in recent years. However, low productivity growth has hindered Mexico’s convergence to higher-income OECD countries and inequalities remain high. These factors call for a renewed strategy to boost productivity and inclusiveness. Rising crime and insecurity are negatively affecting economic activity and citizens’ wellbeing, particularly the underprivileged and women. Strengthening institutional quality is a priority. Improving the weak rule of law will also facilitate the effective implementation of policy initiatives in other areas. In spite of recent achievements, tax revenues remain low and fiscal policy has little redistributive impact. In the near term, improving the efficiency of tax collection and spending will allow the public debt-to-GDP ratio to stabilise and provide some room for greater social and infrastructure spending. In the medium term, raising tax revenues and modifying the tax mix will allow reductions in public debt, create further fiscal space and increase progressivity. Reducing high informality will require coordinated actions in enforcement, taxation, business and labour regulations and the social safety net to better align incentives to formalise and drive resources towards more productive (formal) firms. Increasing educational outcomes for all will increase equality of opportunities and build the foundations for higher productivity. Raising access to quality early childhood education and care will also encourage greater female labour market participation. Improving urban planning and transportation would raise the productivity potential of cities and improve environmental outcomes.

SPECIAL FEATURE: STRENGTHENING INCLUSIVE GROWTH