World Bank: Mexico Fiscal Risk Management Development Policy Loan

Institutional and structural reforms associated with Mexico’s fiscal risk management strategy were fundamental in mitigating the impact of the 2008/09 global financial crisis on public accounts. The Government’s integrated fiscal mitigation framework has evolved over the years and incorporates mechanisms to retain, mitigate and transfer risk related to contingent as well as direct government liabilities. Since 2006, fiscal policy has been guided by the balanced budget rule and medium-term budgetary framework imbedded in the Fiscal Responsibility Law (FRL).

The FRL institutionalized Government efforts to contain fiscal deficits and stabilize debt levels, while supporting accountability and transparency in the annual budget process. In addition to the establishment of a balanced budget rule, the law also introduced a formula for calculating oil prices in budget projections, and established excess oil-revenue stabilization funds.

The saving of revenue in the stabilization funds, Mexico’s oil hedging program and the allowance of temporary deficits provided the authorities with some space to conduct countercyclical fiscal policy without jeopardizing long-term sustainability following the 2008/09 sharp contraction and drop in oil price. However, the protracted impact of the crisis on fiscal accounts worldwide and the impact of the European debt crisis underscore the importance of designing effective risk management strategies in order to minimize the impact of fiscal shocks.

As the global cyclical recovery wanes, economic growth in Mexico is converging toward the country’s medium term potential growth rate. Economic growth has moderated to about 3.8 percent in 2011, after posting an annual rate of growth of 3.9 percent during the first half of the year. Downside risks to growth, associated with a slowdown in U.S. growth and the ongoing problems in Europe, are significant. Despite the U.S. slowdown, external demand will remain buoyed by growth in U.S. industrial production and improved Mexican external competitiveness. Domestic demand will remain expansionary and driven by labor market improvements, credit growth and infrastructure investment. A more moderate global and domestic economic outlook will restrain price pressures.

<><>

<><>

<><>

<><>

<><>

<><>

<><>

<><>

<><>

<><>

<><>

<><>

<><>

<><>

docx
PDF	6 pages	Official Version	[0.42 mb]
Text		Text Version*