Mexico's Revenue Boost: No Fiscal Overhaul Needed, Says President

Mexico's presidential frontrunner, Claudia Sheinbaum, has proposed an innovative strategy to increase government revenue without raising tax rates. Her plan, which involves reducing bureaucratic procedures and digitizing processes, could significantly enhance tax collection efficiency. By streamlining operations and minimizing corruption, Sheinbaum aims to boost revenues without burdening citizens with higher taxes.

Sheinbaum's approach aligns with the International Monetary Fund's (IMF) recommendations for Mexico. The IMF highlights the opportunity presented by the reshaping of global supply chains, particularly the "nearshoring" of production for the U.S. market. Mexico's proximity to and deep trade links with the U.S. position it as a key location for this trend, offering a significant opportunity for economic growth. However, to capitalize on this potential, Mexico must address long-standing structural challenges and pursue prudent macroeconomic policies.

To secure sustainable and inclusive growth, Mexico should focus on higher and better-targeted public investment, improved governance, increased female labor force participation, and pivoting towards cleaner energy sources. These reforms, combined with prudent fiscal management, can help Mexico translate the opportunity into improved employment prospects and better living standards.

Mexico's 2024 fiscal path, with a projected deficit of 5.4% of GDP, is unduly procyclical, boosting demand when the economy is operating above potential and inflation is not yet back to target. This is likely to lead to a higher path for interest rates, a stronger currency, higher debt-to-GDP ratio, and a slower decline in inflation. To support Banxico's efforts to bring inflation back to target, a tighter fiscal stance is needed. This could involve reducing current spending increases and front-loaded investment projects, while maintaining the focus on key infrastructure projects. Additionally, improving the financial affairs of Petroleos Mexicanos (Pemex) should be a priority, with continued budgetary support conditioned on credible plans to improve its commercial viability.



In conclusion, Mexico has the potential to boost tax revenues without a fiscal overhaul, thanks to Sheinbaum's innovative strategy and the IMF's recommendations. By addressing structural challenges and pursuing prudent macroeconomic policies, Mexico can secure sustainable and inclusive growth in a complex global environment. A tighter fiscal stance in 2024 will be crucial to support Banxico's efforts to bring inflation back to target.