Mexico : Selected Issues

Concluding Remarks This note analyzed the recent fiscal reforms, which can make the fiscal framework more instrumental in addressing challenges that Mexico will likely face in coming years. Mexico would benefit from building of fiscal policy buffers to reduce the exposure to high financing and hedging costs during periods of global uncertainty, improving flexibility to implement countercyclical fiscal policies, and addressing long term fiscal challenges associated with a reduction in oil revenue and an increase in health and pension spending. Introducing an additional target on the public sector borrowing requirement in the Fiscal Responsibility Law will make the fiscal rule more transparent and enhance its credibility, and the new structural current expenditure growth cap will help reducing procyclicality in its fiscal framework by restraining expenditure in periods of unusually high revenues. The reforms to mobilize tax revenue are also encouraging initial steps to improve the management of oil wealth and reduce the public sector dependence on oil revenue over the medium term. Looking forward, Mexico could consider a modification in the design of the oil stabilization funds that would allow for simpler revenue transfer rules and operations