2015 OECD ECONOMIC SURVEY OF MEXICO

www.oecd.org/eco/surveys/economic-survey-mexico.htm

Reforms for Shared Prosperity 8 January 2015, Mexico DF

After a prolonged period of slow growth

1. Source: OECD Long-Term Growth Scenarios database

GDP growth has been relatively low in Mexico (constant prices)

1. Source: OECD database

And high levels of poverty and inequality

Bold reforms are underway

• The Pacto por Mexico reforms are historic.

• If legislated reforms are fully implemented, they could: • Raise productivity and living standards by 1 percent a year.

• Reduce informality, poverty and inequality.

These reforms will have large benefits

Impact of reform on GDP growth in the medium term (annual growth rates)

via productivity growth

via capital deepening

via employment

growthGDP growth

0.41 0.51 0.03 1.0 1. Product market regulation

0.06 0.060.32 0.32

0.45 0.45 2. Labour market reform

a) Employment protection 0.03 0.03 3. Tax structure 0.07 0.07 4. Legal reform 0.03 0.03

OECD estimates of legislated and envisioned reforms1

c) Petroleum

Source: Bourlès et al. (2010); USEIA (2014); Bassanini et al. (2009); Dougherty and Escobar (2014); Thévenon et al. (2012); Johansson et al. (2011); IMF-OECD-World Bank (2014); Dougherty (2014).

Impact after 5 years, assuming immediate implementation

(1) Note: The f inancial reform and the educational reform are also likely to have a signif icant impact in grow th (the later mainly in the long term), but have not been included in the table because of diff iculties quantifying the impact.

A. Pacto por M exico Reforms:

a) Telecomsb) Electricity & gas

And more could be done

Next steps for reforms:

• Strengthen legal and administrative governance.

• Reduce income and gender inequalities.

• Provide all families with high quality health care.

• Improve the equity and efficiency of education spending .

The benefits of additional reforms are also large

Impact of additional reform on GDP growth in the medium term (annual growth rates)

via productivity growth

via capital deepening

via employment

growthGDP growth

B. Additional Reforms: 0.91 0.00 0.10 1.0 5. Judicial reform 0.50 0.50 6. Labour market reform

0.42 0.42c) Female participation 0.10 0.10

C. Total 1.82 0.51 0.13 2.0

b) Pro-formality reforms

Source: Bourlès et al. (2010); USEIA (2014); Bassanini et al. (2009); Dougherty and Escobar (2014); Thévenon et al. (2012); Johansson et al. (2011); IMF-OECD-World Bank (2014); Dougherty (2014).

OECD estimates of legislated and envisioned reforms1

Impact after 5 years, assuming immediate implementation

These reforms will put Mexico on a path of long-term growth

1. Source: OECD Long-Term Growth Scenarios database

These reforms could increase annual GDP growth by one percentage point a year over the next ten years

Outline of presentation

1. The Pacto por Mexico reforms

2. Reforms to go beyond the Pacto

1. THE PACTO POR MEXICO REFORMS

The Pacto makes Mexico a top reformer

Share of OECD reform recommendations with significant action taken in 2013-2014

1. Note: Emerging OECD countries include Chile, Estonia, Hungary, Mexico, Poland and Turkey. Southern Europe countries are Greece, Italy, Portugal and Spain. 2. Source: OECD, Going for Growth (forthcoming) with interim estimates of 2014 reform implementation.

Many bold reforms in the Pacto Reform Secondary

legislation approved

Main provisions enacted?

Constitutional amendment (if required)

New or empowered

regulator

Legislative approval

Remaining steps to be taken?

Reforms approved and being implemented Labour Dec 2012 Yes - - Federal - Amparos April 2013 Yes Yes - Federal/ States - Education Sep 2013 Yes Yes Yes Federal/

States Multiple stages

Tax/Fiscal Oct 2013 Yes - - Federal - Financial Jan 2014 Yes - Yes Federal - Transparency (access to public information)

Feb 2014 Yes Yes Yes Federal/ some states

-

National Criminal Procedural Code

Mar 2014 Partial - - Federal/ some states

States to use new code by 2016

Telecoms July 2014 Yes Yes Yes Federal/ States - Political/Elections May 2014 Partial Yes Yes Federal/ some

states States to adopt by

2018 Economic competition

May 2014 Yes Yes Yes Federal -

Energy Aug 2014 Yes Yes Yes Federal/ States Issue new bidding rules

Reform of criminal justice

- Partial Yes - Federal/ some states

States should adopt by 2016

Reforms yet to be approved Anti-corruption and civil justice No Yes Yes - Pass bill Expenditure (Pensions and UI)

- No - - Pass bill

Health - No - - - Introduce bill Agriculture - No - - - Draft bill

Telecom and energy sectors will be open to competition

Thanks to lower restrictions, regulatory performance will improve sharply

1. Source: OECD, Product Market Regulation database, 2014 and interim estimates prepared in co-operation with Mexican authorities.

Petroleum production is set to expand substantially (Million barrels per day)

1. Source: US Energy Information Administration, International Energy Outlook 2014.

Reforms will help to boost energy production

REFORMS TO GO BEYOND THE PACTO

Rule of law should be improved and corruption reduced

• Strengthen administrative capacity and governance quality at all levels of government.

• Reform justice institutions, strengthen the rule of law, address security issues and reduce widespread corruption

• Focus on efficiency of judicial resolution of civil, commercial and criminal matters, and a strengthening of the transparency of public procurement.

• Improve and simplify the existing stock and quality of regulation at the local, state and national levels.

• Phase out restrictions on agricultural land ownership and transfer, while strengthening rural income support and access to finance.

Detailed recommendations to strengthen rule of law

1. Source: Olaberria (2015, forthcoming)

Higher income inequalities are associated with lower social mobility

Great Gatsby Curve

Income inequality is high, Social mobility is low

• Mexico has the widest gender gap in Labour Force Participation in OECD.

• Lower maternal employment is associated with higher child poverty rates.

• Mexico spends little in active labour market programmes

• And access to child care is scarce

And there are large gender gaps

• Approve draft legislation for unemployment insurance and universal pension.

• Fully roll-out the new Prospera cash transfer programme.

• Encourage more women to join the formal labour force:

– Improving access to quality child-care for children under three years of age,

– Extend active labour market policies.

• Take steps to delink the minimum wage from other prices in the broader economy

• Investigate the effects on jobs and informality of raising the minimum wage in real terms.

Detailed recommendations to reduce income inequalities and the gender gap

1. Source: Inter-American Development Bank.

• Secondary school graduation rates are lower especially for low-income groups

• States with higher

levels of income inequality, have lower educational outcomes

High-school Graduation rates by income quintile

Mean score in mathematics (PISA) and inequality by State

High-school graduation rates are low and unequal

• Improve the equity and efficiency of education spending: – Refocus such spending on pre-primary, primary and secondary education.

– Concentrate on the quality of teaching.

• Enhance investment in dual education and vocational education and training programmes.

Recommendations to improve education

Health outcomes and affiliation to IMSS

1. Source: IMSS and INEGI, Censos de Población y Vivienda, 2010.

Inequalities in health outcomes

• Improve coordination across health institutions to reduce redundancies

– Promote exchange of services between health care networks.

• Standardise procedures across all health care providers

• Make health insurance mandatory.

• Improve coordination between social security and the tax collection agencies.

• Allocate financial resources to state health services according to need and give more flexibility to the states to determine how to spend them.

• Consider converting government hospitals into corporate entities.

Detailed recommendations to improve access to quality health care

Compare your country data visualization tool

OECD Economic Surveys: Mexico 2015

• Read this publication

• Website with additional information

Follow us on twitter:

OCDE en Español OECD OECD Economics