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Title page 1

Contents 5

Foreword 4

Basic statistics of Mexico, 2024 9

Executive summary 10

The economy remains stable, yet revitalizing growth is a priority 11

Growth is set to remain modest amid elevated risks 12

Higher revenues are needed to safeguard fiscal sustainability and boost productivity-enhancing spending 12

Building up skills and facilitating women employment would reduce informality 14

Mexico is raising its climate ambition 15

Boosting digitalization would boost productivity 16

1. Securing macroeconomic stability and fostering growth 20

1.1. Growth and inflation have moderated 21

1.1.1. Trade tariffs and uncertainty have started to weigh on some exports 23

1.1.2. Consumption and investment have weakened 26

1.1.3. Growth will remain modest 29

1.2. Monetary policy is easing 31

1.3. The financial sector appears resilient 33

1.4. Ensuring fiscal sustainability 36

1.4.1. Fiscal consolidation has started 36

1.4.2. Enhancing the fiscal framework 40

1.4.3. Strengthening the quality of spending 41

1.4.4. Increasing revenues to maintain fiscal prudence and respond to spending needs 44

1.5. Strengthening governance 48

1.5.1. Recent reforms to the judiciary and sector regulators 48

1.5.2. Redoubling efforts to reduce corruption 49

1.5.3. A new security strategy is in place to fight crime 50

References 54

2. Reducing informality by building skills and facilitating women's employment 56

2.1. Informality remains high 57

2.2. Strengthening skills development 58

2.3. Removing barriers to women's formal employment 64

References 71

3. Promoting decarbonization and adapting to climate change 74

3.1. Accelerating emission cuts 75

3.1.1. Making the most out of renewable resources 76

3.1.2. Integrating climate objectives into fiscal planning and budgetary processes 78

3.2. Strengthening measures to adapt to climate change 78

3.3. Improving water availability and quality 81

References 86

4. Boosting digitalisation 88

4.1. Leveraging digital adoption to drive productivity in Mexico 89

4.2. Mexico's digital development 91

4.2.1. Connectivity gaps remain significant 91

4.2.2. The use of digital technologies is rising, but from a low base 92

4.2.3. Readiness to digitalisation is uneven across states and firms 95

4.2.4. The government is strengthening institutional capacity and strategic coordination for the digital transformation 97

4.3. Strengthening Mexico's regulatory framework of the digital economy 98

4.3.1. Safeguarding independent telecom regulation 98

4.3.2. Safeguarding competitive neutrality and regulatory effectiveness 99

4.3.3. Making spectrum more affordable 100

4.3.4. Streamlining local regulation for broadband infrastructure deployment and enhancing infrastructure sharing 102

4.3.5. Strengthening regulation of digital markets 103

4.3.6. Reinforcing the data regulation framework 104

4.4. Advancing digital government 105

4.4.1. Digitalisation can reduce and simplify administrative procedures 106

4.4.2. Ensuring strong intergovernmental coordination and interoperability 108

4.4.3. Expanding digital service coverage and ensuring equitable service provision 109

4.4.4. Enhancing data intelligence and open government data policy 110

4.4.5. Making cybersecurity a priority 111

4.5. Strengthening skills for the digital transition 113

4.5.1. Improving foundational skills 114

4.5.2. Strengthening advanced digital skills 115

4.5.3. Promoting digital skills in the public sector 119

4.6. Harnessing the benefits of AI and emerging technologies 120

4.6.1. Accelerating AI adoption among SMEs 120

4.6.2. Building a National AI Strategy 121

4.6.3. Promoting fair and responsible AI regulation 122

References 125

Tables 8

Table 1. Growth will remain moderate 12

Table 1.1. Tariff measures on Mexican exports to United States 25

Table 1.2. Macroeconomic indicators and projections 29

Table 1.3. Low probability events that could lead to major changes in the outlook 30

Table 1.4. Past OECD recommendations to improve macroeconomic policies 33

Table 1.5. Evolution of main fiscal aggregates according to the latest government budget 37

Table 1.6. Illustrative fiscal impact of some recommendations 39

Table 1.7. Expected gains from ambitious structural reforms are large 40

Table 1.8. Policy recommendations 52

Table 2.1. Recent reforms aimed at reducing informality in Mexico 58

Table 2.2. Past OECD recommendations on social policies 61

Table 2.3. Policy recommendations 70

Table 3.1. Past OECD recommendations on fighting climate change 76

Table 3.2. Policy recommendations 85

Table 4.1. Regional economic convergence is not significant 96

Table 4.2. Policy recommendations 124

Figures 6

Figure 1. GDP per capita growth has remained subdued over the past two decades 11

Figure 2. The public sector deficit increased sharply in 2024 14

Figure 3. Workers with lower education are more likely to end up in informal employment 15

Figure 4. Despite high potential, the share of electricity generated from renewables is low 16

Figure 5. Digital skills among adults are weak 17

Figure 1.1. Growth remains weaker than in peer countries 21

Figure 1.2. Consumption and exports supported growth 22

Figure 1.3. Sluggish GDP per capita growth over the past two decades constrains living standards 22

Figure 1.4. United States is Mexico's main trading partner 23

Figure 1.5. The effective US tariff rate for Mexico has increased 24

Figure 1.6. Non-automotive manufacturing exports have remained robust 24

Figure 1.7. Use of USMCA preferences differs across sectors 25

Figure 1.8. Increasing the share of exports USMCA-compliant reduces the effective tariff rate 26

Figure 1.9. Consumption has moderated 27

Figure 1.10. The standard unemployment rate is low but participation has edged down 27

Figure 1.11. Policy uncertainty has surged 28

Figure 1.12. Investment has weakened 28

Figure 1.13. External debt has fallen and the level of reserves is comfortable 30

Figure 1.14. Foreign direct investment supports a small current account deficit 30

Figure 1.15. The interest rate has fallen 32

Figure 1.16. Inflation has recently picked up 32

Figure 1.17. The exchange rate has appreciated 33

Figure 1.18. The banking sector appears solid 34

Figure 1.19. Private debt is low 35

Figure 1.20. The public sector deficit increased notably in 2024 36

Figure 1.21. Additional fiscal consolidation is needed to put debt on a firmly declining path 38

Figure 1.22. Public spending is relatively low 38

Figure 1.23. Public spending on pensions and interest payments are trending up 39

Figure 1.24. Spending on education and health are relatively low 42

Figure 1.25. Mexico has the lowest tax-to-GDP ratio in the OECD 44

Figure 1.26. There is significant room to broaden the VAT tax base 45

Figure 1.27. Immovable property and environmental taxes yield relatively low revenues 46

Figure 1.28. Mexico derives the highest share of revenues from VAT and corporate tax 47

Figure 1.29. Corruption perceptions remain high 50

Figure 1.30. Homicide rates have recently fallen according to official statistics but remain very high 51

Figure 1.31. Public safety is a key concern for firms 52

Figure 2.1. Labour informality has been coming down but remains high 57

Figure 2.2. Workers with lower education are more likely to end up in informal employment 58

Figure 2.3. Many Mexicans have not finished secondary education 59

Figure 2.4. There are significant differences in skill levels across Mexico 60

Figure 2.5. States with higher skill levels tend to display lower informality rates 60

Figure 2.6. The share of tertiary graduates is comparatively low 62

Figure 2.7. There is a pressing need to improve English skills 64

Figure 2.8. Women face higher informality rates and lower labour market participation 65

Figure 2.9. Mexicans perceive limited access to affordable childcare and other family supports 65

Figure 2.10. Care responsibilities are a barrier for women labour market participation 66

Figure 2.11. Informality is higher among women with greater care responsibilities 67

Figure 2.12. Few children attend early education and care 67

Figure 3.1. Mexico is setting more ambitious emission reduction targets 76

Figure 3.2. The share of electricity generated from renewable is low despite high potential 77

Figure 3.3. Exposure to climate hazards is high 79

Figure 3.4. Water stress and distribution losses are high 81

Figure 3.5. The share of wastewater treatment is low 82

Figure 4.1. Productivity growth in Mexico has been very weak for the past two decades 90

Figure 4.2. Mexico's growth has relied on labour force expansion rather than productivity gains 90

Figure 4.3. Mexico needs to further improve its digital infrastructure 91

Figure 4.4. The number of Mexicans using the internet for online shopping and e-banking is increasing 92

Figure 4.5. Few Mexicans use internet to access government services 93

Figure 4.6. Small firms lag behind in the adoption of digital technologies 93

Figure 4.7. Few firms have a website 94

Figure 4.8. Firms selling on the internet have higher wages and profits 94

Figure 4.9. The cost of fixed broadband is high for low-income households 95

Figure 4.10. Digital readiness is uneven across states 95

Figure 4.11. Level of digital readiness and potential growth across Mexican states 96

Figure 4.12. Most countries have an independent regulator in the e-communications sector 98

Figure 4.13. Regulatory barriers in the telecommunications sector are high in Mexico 100

Figure 4.14. The cost of spectrum in Mexico is high in international comparison 101

Figure 4.15. The wireless and broadband markets remain highly concentrated 101

Figure 4.16. Mexico lags behind in regulation of digital platforms and other emerging technologies 103

Figure 4.17. Mexico has room for progressing in the digital transformation of the public sector 106

Figure 4.18. There is room to simplify business regulation in Mexico 107

Figure 4.19. Less than half of Mexicans trust the government to handle their personal data 110

Figure 4.20. Mexico could enhance its open government data policy 111

Figure 4.21. Mexico is highly vulnerable to cyberattacks 112

Figure 4.22. Digital skills among adults are not widespread 113

Figure 4.23. Mexico lags behind in foundational skills 114

Figure 4.24. There are still too few tertiary graduates 117

Figure 4.25. Mexican firms lag behind in adopting advanced digital technologies 120

Figure 4.26. Mexico needs more talent and investment in AI 123

Boxes 8

Box 1.1. Plan México: a strategy to boost investment 21

Box 1.2. Chile's upgraded fiscal framework 41

Box 2.1. There are significant differences in skills across Mexico 59

Box 2.2. Reducing dropouts while improving education quality: the case of Portugal 61

Box 2.3. Expanding good-quality childcare within fiscal constraints 68

Box 3.1. Best practices in water data and information systems 82

Box 4.1. Can digitalisation drive economic convergence in Mexico? 96

Box 4.2. Advancing digital government: the cases of Colombia and Iceland 97

Box 4.3. Mandating interoperability in digital markets 104

Box 4.4. Mexico City's digital government transformation 106

Box 4.5. Transforming public services through digital identity in Estonia 109

Box 4.6. Dual education initiatives in Mexico 116

Box 4.7. Skills training programmes in Mexico 118

Box 4.8. International Approaches to Public Sector Digital Skills Development 119

Box 4.9. Supporting SMEs' digitalisation: the cases of Brazil, Denmark, Germany and Singapore 121

Box 4.10. Global Trends in National AI Strategies 122

Box 4.11. Best Practices in AI Governance: the case of Brazil, Chile and Norway 122

Box 4.12. Examples of AI Regulatory Approaches 123