IMF Concludes Mexico Consultation: Fund Urges Deeper Fiscal Consolidation
The International Monetary Fund (IMF) has concluded its 2025 Article IV consultation with Mexico, urging the country to pursue a more ambitious and front-loaded fiscal consolidation plan to curb rising public debt and build crucial fiscal buffers against future economic shocks.
The recommendation comes as the Fund projects Mexico’s economic growth to remain relatively soft, constraining the nation’s ability to generate revenue naturally.
The IMF’s Executive Board Directors welcomed the initial reversal of the 2024 fiscal expansion but collectively stressed that a deeper, more sustainable commitment to fiscal discipline is essential for Mexico’s long-term economic stability.
Soft Growth Outlook and Debt Concerns
The IMF’s latest economic assessment for Mexico paints a picture of moderating inflation but subdued growth, with the forecast for 2025 revised to 1.0 percent. This is a slowdown from the 1.5 percent growth recorded in 2024.
Economic Headwinds
The soft growth projection is attributed to several significant headwinds:
• The effects of the necessary fiscal consolidation currently underway.
• Restrictive monetary policy by Banxico (Mexico’s central bank) aimed at bringing inflation down to the 3 percent target by the second half of 2026.
• Persistent trade uncertainty, particularly related to trade tensions with the U.S., which continues to weigh on both consumption and investment.
The Fund projected that under current policies, gross public sector debt is set to reach 58.9 percent of GDP by the end of the year and warned it could continue an “upward drift” over the medium term without stronger intervention.
Deeper Consolidation: The IMF’s Core Demand
The Fund’s primary recommendation centers on implementing a more ambitious fiscal strategy beyond the government’s current medium-term targets.
Focus on Revenue Mobilization
IMF Directors stressed that consolidation efforts should be strategically designed to protect essential social spending and growth-enhancing public investment.
Therefore, the emphasis should shift to the revenue side of the ledger rather than solely relying on spending cuts. Key recommendations include:
• Improving Tax Administration: Strengthening the efficiency and oversight of tax collection.
• Tax Policy Changes: Mobilizing tax revenues through reforms, such as making personal income taxes more progressive and eliminating certain tax exemptions (tax expenditures).
• Strengthening State-Owned Enterprises (SOEs): Enhancing the financial health and profitability of key SOEs, particularly Pemex, to reduce their burden on public finances.
The IMF further stressed the need to strengthen the medium-term fiscal framework to enhance the credibility of Mexico’s debt-reduction plans.
Unlocking Potential Growth
Beyond immediate fiscal concerns, the IMF highlighted that unlocking stronger potential growth—projected to accelerate to 1.5 percent in 2026—requires addressing long-standing structural constraints.
The Fund’s advice for long-term growth focused on systemic reforms to improve the business environment:
• Strengthening the Rule of Law and Judicial Independence
• Tackling Corruption and Crime
• Closing Infrastructure Gaps
• Deepening Integration with global trading partners, affirming the importance of open trade as an engine of growth.
In summary, the 2025 Article IV consultation called for a dual policy approach: prudent, front-loaded fiscal action in the short term, coupled with structural reforms to boost long-term productivity and secure Mexico’s position as a stable emerging market.
Headline Points: Mexico’s IMF Consultation
• Location: Mexico City, Mexico.
• Consultation: IMF 2025 Article IV Consultation concluded on October 27.
• Growth Forecast: Soft growth projected at 1.0% for 2025 (down from 1.5% in 2024).
• Core Recommendation: Urging deeper and front-loaded fiscal consolidation to prevent a rising public debt-to-GDP ratio.
• Fiscal Focus: Consolidation efforts should concentrate on mobilizing tax revenues and strengthening key state-owned enterprises like Pemex, while protecting social and infrastructure spending.
• Long-Term Advice: Structural reforms are needed to improve the rule of law and close infrastructure gaps to unlock stronger potential growth.
