OECD Economic Surveys O E C MEXICO D E c o SPECIAL FEATURE: IMPROVE FISCAL FEDERAL RELATIONS n o OECD Economic Surveys m ic S Most recent editions u r v Australia, December 2012 Israel, December 2011 ey MEXICO s Austria, July 2011 Italy, April 2013 Belgium, July 2011 Japan, April 2011 Brazil, October 2011 Korea, April 2012 Canada, June 2012 Luxembourg, December 2012 Chile, January 2012 Mexico, May 2013 China, March 2013 Netherlands, June 2012 Colombia, January 2013 New Zealand, April 2011 Czech Republic, November 2011 Norway, February 2012 V MAY 2013 o Denmark, January 2012 Poland, March 2012 lu Estonia, October 2012 Portugal, July 2012 m e Euro area, March 2012 Russian Federation, December 2011 2 European Union, March 2012 Slovak Republic, December 2012 0 1 Finland, February 2012 Slovenia, April 2013 3 / 9 France, March 2013 South Africa, March 2013 Germany, February 2012 Spain, November 2012 Greece, August 2011 Sweden, December 2012 Hungary, March 2012 Switzerland, January 2012 Iceland, June 2011 Turkey, July 2012 India, June 2011 United Kingdom, February 2013 Indonesia, September 2012 United States, June 2012 Ireland, October 2011 M E X Consult this publication on line at http://dx.doi.org/10.1787/eco_surveys-mex-2013-en. IC O This work is published on the OECD iLibrary, which gathers all OECD books, periodicals and statistical databases. Visit www.oecd-ilibrary.org for more information. Volume 2013/9 ISSN 0376-6438 May 2013 2013 SUBSCRIPTION (18 ISSUES) ISSN 1995-3666 SUBSCRIPTION BY COUNTRY M -:HSTCQE=V]W^[\: a y ISBN 978-92-64-18296-7 2 10 2013 09 1 P 0 1 3 102013091cov.indd 1 25-Mar-2013 9:31:54 AM OECD Economic Surveys: Mexico 2013 This document and any map included herein are without prejudice to the status of or sovereigntyoveranyterritory,tothedelimitationofinternationalfrontiersandboundaries andtothenameofanyterritory,cityorarea. 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TABLEOFCONTENTS Table of contents Executivesummary......................................................... 9 Assessmentandrecommendations........................................... 13 Makingreformhappen .................................................. 13 Shortandmedium-termmacroeconomicpolicies ........................... 13 Long-termeconomicgrowth ............................................. 18 Environmentalprotectionandenergypolicy ............................... 25 Fiscalreform ........................................................... 30 Bibliography............................................................ 42 AnnexA1.Progressinstructuralreform .................................... 44 Chapter1.Newfindingsonobstaclestoeconomicgrowth ....................... 47 Economicgrowth ....................................................... 48 Informality ............................................................ 52 Thelegalsystemandruleoflaw .......................................... 59 Bibliography............................................................ 63 Chapter2.Greengrowthchallengesandtheneedforanenergyreform............ 65 Greengrowthchallenges................................................. 66 EnergysectorreformtoboosttheproductivityofPEMEX ..................... 81 Bibliography............................................................ 85 Chapter3.ImprovingfiscalfederalrelationsforastrongerMexico ................ 87 Mexicanfiscaldecentralisation:Mainfeaturesandrecenttrends.............. 90 Issueswithintergovernmentalspendingassignments ....................... 93 Issueswithintergovernmentalrevenueassignments ........................ 101 Measurestoreducethepro-cyclicalityinsub-nationalrevenues............... 114 Improvingpublicfinancialmanagement ................................... 115 Subnationalgovernments’debthasbeenincreasingandpensionliabilities arelarge............................................................... 117 Concludingremarks..................................................... 122 Notes.................................................................. 124 Bibliography............................................................ 124 Annex3.A1. ............................................................ 128 Boxes 1. Mainstructuralpolicyrecommendationsforboostinggrowth.............. 24 2. Mainrecommendationsforenvironmentalprotectionandenergypolicy.... 30 3. Mainrecommendationstoimprovethefiscalframeworkandfiscalfederalism . 36 4. Mainrecommendationsontaxpolicyandsocialtransfers................. 42 OECDECONOMICSURVEYS:MEXICO©OECD2013 3 TABLEOFCONTENTS 1.1. TheAustralianProductivityCommission................................ 51 1.2. ExplaininginformalityinMexico ...................................... 53 1.3. Mainstructuralpolicyrecommendationsforboostinggrowthpotential..... 63 2.1. Attractingprivateinvestmenttowardsgreeninfrastructurethrough structuredinstruments(CKDs) ........................................ 81 2.2. Mainrecommendationsforgreengrowthandenergypolicy .............. 84 3.1. Whatarethecharacteristicsofgoodintergovernmentalfiscalarrangements? 89 3.2. Mexico’s2007reformtostrengthenitsfederalfiscalframework............ 97 3.3. TheNorwegianKOSTRAsystem:Whatgetsmeasuredgetsdoneandimproved 109 3.4. AnassessmentofthestabilisationpropertiesoftheMexican intergovernmentaltransfersystem..................................... 114 3.5. Recommendationstoimprovefiscalrelationsacrosslevelsofgovernment .. 123 Tables 1. Demand,outputandprices ........................................... 15 2. Bankingsystemfinancialindicators.................................... 16 1.1. Estimatesofaninformalityequationacrossstatesandindustries.......... 53 1.2. Implementationofnewpenalcodes.................................... 61 2.1. Water,sanitaryservicesandwastewatertreatment...................... 76 3.1. Allocationofgovernmentresponsibilitiesforkeypublicservices........... 93 3.A1.1. Non-earmarkedtransfers(Participacionesfederales,Ramo28)............. 128 3.A1.2. Earmarkedtransfers(Aportacionesfederales,Ramo33)................... 129 3.A1.3. Assignmentsoftaxestosub-nationalgovernments ...................... 130 3.A1.4. Debtlimitsbystate .................................................. 131 Figures 1. Macroeconomicindicators............................................ 14 2. PrivatecreditasashareofGDP........................................ 17 3. ContributionstoGDPpercapitagrowth................................. 18 4. Stringencyofemploymentprotectionlegislation......................... 19 5. Distributionofmanufacturingenterprisesbysizeclass................... 20 6. PISAresultsforMexico............................................... 21 7. Start-updelaysandcostsforstartingabusiness......................... 22 8. Airpollutionandwaterstress ......................................... 26 9. Energy,GDPandcarbonemissions..................................... 27 10. Gasolinepricesandtaxrevenues ...................................... 28 11. Unitpriceofwaterandsanitationservicestohouseholds................. 29 12. PEMEXrevenueperemployeecomparedwithotherstate-ownedoil companies.......................................................... 29 13. Fiscalbalanceandpublicdebt......................................... 31 14. Grossnationaldebtasashareofgovernmenttaxrevenues................ 31 15. Sub-nationalrevenueasapercentageofsub-nationalspending ........... 33 16. Recurrenttaxesonimmovableproperty ................................ 35 17. VATrevenuesasapercentageofpotentialrevenuefromfinalconsumption 37 18. Relativepovertyinthelate2000s ...................................... 39 19. Povertyindicators ................................................... 39 1.1. GapsinGDPpercapitaandproductivityarewideandpersistent........... 49 4 OECDECONOMICSURVEYS:MEXICO©OECD2013 TABLEOFCONTENTS 1.2. Unitlabourcostshavebeenfallingaslabourproductivityhasimproved inmanufacturing.................................................... 49 1.3. Shift-shareanalysisoflabourproductivityevolution ..................... 50 1.4. Verysmallandlargeenterprisesdominateemployment .................. 52 1.5. EducationperformancebasedonPISAscoresisweakatalllevels .......... 54 1.6. Thetimerequiredtostartabusinesshasbeenfallinginnearlyallstates.... 56 1.7. Concentrationinselectedeconomicsectors............................. 57 1.8. Mexico’saverageandtrade-weightedtariffshavebeenreduced............ 58 1.9. Improvementsinthelegalsystemwouldboostaveragefirmsize........... 59 1.10. SafetyasacomponentoftheOECDBetterLifeIndex ..................... 60 1.11. Mexicoscorespoorlyonindexesoftheruleoflawandcorruption.......... 62 2.1. Airpollutionandwaterstress ......................................... 67 2.2. Energy,GDPandcarbonemissions..................................... 68 2.3. Subsidyincidencebyincomegroup .................................... 69 2.4. ImpactonGHGemissionsofphasing-outfossilfuelsubsidies ............. 69 2.5. Gasolinepriceandtaxrevenues ....................................... 70 2.6. Revenuesfromenvironmentally-relatedtaxes........................... 71 2.7. Electricpowertransmissionanddistributionlosses ...................... 72 2.8. CO emissionsbysector .............................................. 73 2 2.9. CONAGUA’sbudgetandrevenuesfromwaterabstractioncharges .......... 75 2.10. Watertariffsandtariffsbymunicipality ................................ 77 2.11. Investmentsrequiredto2030inlow-carboninterventionsinMexicobysector 79 2.12. Investmentsrequiredtoimplementthe2030WaterAgenda ............... 79 2.13. PEMEXoilproductionbyfield ......................................... 82 2.14. FinancialsummaryofPEMEX.......................................... 82 3.1. Keyhighlightsonsub-nationalspending................................ 91 3.2. Sub-nationalgovernments’revenuesources............................. 92 3.3. Sub-governmentrevenueandexpenditure,2011......................... 92 3.4. Healthoutcomesbystate............................................. 98 3.5. Healthspendingbystate ............................................. 99 3.6. Earmarkedhealthspendingperstate................................... 100 3.7. Mostmunicipalitiesdependonexternalfunding......................... 102 3.8. Stateandlocaltaxrevenue ........................................... 103 3.9. Recurrenttaxesonimmovableproperty ................................ 105 3.10. Unitpriceofwaterandsanitationservicestohouseholds................. 107 3.11. Transfersarenotequalisingandlittlerelatedtolocaltaxeffort ............ 110 3.12. Thesocialinfrastructurefunddoestargetmarginalisation ................ 111 3.13. RegionaldisparitiesacrossOECDcountries.............................. 112 3.14. Sub-centralgovernmentdebt.......................................... 117 3.15. Fiscalgaps.......................................................... 118 3.16. Pensionliabilitiesbystate ............................................ 120 OECDECONOMICSURVEYS:MEXICO©OECD2013 5 This Survey is published on the responsibility of the Economic and Development Review Committee of the OECD, which is charged with the examinationoftheeconomicsituationofmembercountries. TheeconomicsituationandpoliciesofMexicowerereviewedbytheCommittee on 19February2013. The draft report was then revised in the light of the discussionsandgivenfinalapprovalastheagreedreportofthewholeCommitteeon 8March2013. TheSecretariat’sdraftreportwaspreparedfortheCommitteebySeanDougherty, AidaCalderaSánchez and CarlaValdivia de Richter, under the supervision of PatrickLenain.StatisticalassistancewasprovidedbyRoselyneJamin. ThepreviousSurveyofMexicowasissuedinMay2011. This book has... StatLinks2 A service that delivers Excel® files from the printed page! Look for the StatLinks at the bottom right-hand corner of the tables or graphs in this book. 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BASICSTATISTICSOFMEXICO,2011 (NumbersinparenthesesrefertotheOECDaverage)1 LAND,PEOPLEANDELECTORALCYCLE Population(million) 115.6 Populationdensityperkm² 58.6 (34.3) Under15(%) 29.2 (18.4) Lifeexpectancy(years,2010) 74.0 (79.7) Over65(%) 5.8 (14.9) Males 71.1 (76.9) Foreign-born(%,2010) 0.9 Females 77.0 (82.5) Latest5-yearaveragegrowth(%) 1.3 (0.5) Lastgeneralelection July2012 ECONOMY Grossdomesticproduct(GDP) Valueaddedshares(%)incurrentprices Incurrentprices(billionUSD) 1.157.3 Primary 3.7 (2.5) Incurrentprices(billionMXN) 14.395.8 Industryincludingconstruction 35.6 (27.8) Latest5-yearaveragerealgrowth(%) 1.5 (0.8) Services 60.7 (69.3) Percapita,PPP(thousandUSD) 15.2 (35.4) GENERALGOVERNMENT PercentofGDP Expenditure(2010) 23.2 (44.0) Revenue(2010) 21.7 (36.1) EXTERNALACCOUNTS Exchangerate(MXNperUSD) 12.393 Mainexports(%oftotalmerchandiseexports) PPPexchangerate(USA=1) 8.184 Machineryandtransportequipment 52.6 InpercentofGDP Mineralfuels,lubricantsandrelatedmaterials 15.9 Exportsofgoodsandservices 31.6 (52.7) Manufacturedgoods 8.1 Importsofgoodsandservices 32.8 (49.7) Mainimports(%oftotalmerchandiseimports) Currentaccountbalance -0.8 (-0.7) Machineryandtransportequipment 45.3 Netinternationalinvestmentposition(2010) 39.6 Manufacturedgoods 13.6 Chemicalsandrelatedproducts 11.3 LABOURMARKET,SKILLSANDINNOVATION Employmentrate(%)for15-64yearolds 60.0 (64.8) Unemploymentrate(%) 5.2 (7.9) Males 78.0 (73.0) Youth(%) 9.9 (16.2) Females 43.7 (56.8) Long-termunemployed(%) 0.1 (2.6) Averageworkedhoursperyear 2.215(1776) Tertiaryeducationalattainment25-64year-olds GrossexpenditureonR&D(%ofGDP,2009) 0.4 (2.4) (%,2010) 17.4 (30.7) ENVIRONMENT Totalprimaryenergysupplypercapita(TOE) 1.7 (4.3) CO emissionsfromfuelcombustionpercapita 3.8 (10.1) 2 Renewables(%) 9.3 (8.2) (tonnes,2010) Fineparticulatematterconcentration 32.7 (22.0) Waterabstractionspercapita(1000m3,2009) 0.7 (urban,PM10,g/m3,2008) Municipalwastepercapita(tonnes,2010)3 0.4 (0.5) SOCIETY Incomeinequality(Ginicoefficient,late2000s) 0.466(0.314) Educationoutcomes(PISAscore,2009) Relativepovertyrate(%,late2000s) 26.7 (17.9) Reading 425 (493) Publicandprivatespending(%ofGDP) Mathematics 419 (496) Healthcare(2010) 6.2 (9.7) Science 416 (501) Pensions(2009) 1.7 (8.2) Shareofwomeninparliament(%,October2012) 36.0 (25.3) Education(excludingtertiary,2009) 4.0 (4.0) Betterlifeindex:www.oecdbetterlifeindex.org 1. WheretheOECDaggregateisnotprovidedinthesourcedatabase,asimpleOECDaverageoflatestavailabledataiscalculatedwhere dataexistsforatleast29membercountries. 2. 2010fortheOECD. 3. 2009fortheOECD. Source: Calculationsbasedondataextractedfromthedatabasesofthefollowingorganisations:OECD,InternationalEnergyAgency, WorldBank,InternationalMonetaryFundandInter-ParliamentaryUnion.