Uncertainty looms in Mexico’s future

Uncertainty looms in Mexico’s future

Beyond threats to NAFTA, corruption continues to drag down the nation’s economy, the IMF says.

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January 5, 2018
Brian Taylor
Financial International Recycling News

Donald Trump’s open questioning of the North American Free Trade Agreement (NAFTA) is not the only threat to Mexico’s economy, according to a recent write-up by the International Monetary Fund (IMF). Also weighing on the nation’s future are corruption and its ability to collect taxes.

In an online post titled “Mexico’s Outlook in 5 Charts,” the IMF indicates Mexico would “benefit from carrying out reforms for stronger and more inclusive growth,” with “the main areas to tackle” being inequality, corruption, obstacles holding back firms’ productivity and tax collection that would stimulate more public investment.

The combination of concerns has caused the IMF to predict a 2018 gross domestic product (GDP) growth rate of just 1.9 percent, down from 2.1 percent growth in 2017. In addition to the internal governance woes, the IMF cites “uncertainty related to the renegotiation of the NAFTA.”

In terms of suggested solutions, the IMF states Mexico “should strengthen its tax collection,” adding the nation “stands out among its peers in Latin America with its low share of tax revenues, which constrains public spending.” The organization claims Mexico could invest more in public infrastructure if it improves its tax collection, including by closing tax avoidance loopholes.

“Strengthening the rule of law and fighting corruption should be a priority for Mexico,” the IMF report authors continue. “Swift implementation of all elements of national and state level anti-corruption plans are critical to lifting potential growth.”

The IMF concludes that the nation’s informal (nontax collecting) sector is especially large in the southern half of Mexico. It indicates the “Pacto por Mexico (a reform agreement endorsed by the major Mexican political parties in 2012) would especially benefit southern states and help boost productivity.”