Journal Issue

Mexico: Staff Report For The 2011 Article IV Consultation—Informational Annex

International Monetary Fund
Published Date:
August 2011
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(As of May 31, 2011)

The 2011 Article IV discussions were held in Mexico City during June 6–16, 2011. The staff team comprised M. Kaufman (Head), E. Flores and M.K. Tang (both WHD), K. Guo (SPR), P. Imam (MCM), and P. Lopez-Murphy (FAD). G. Terrier (WHD) joined for the second half of the mission and N. Eyzaguirre for the concluding meetings. The mission met with the Minister of Finance, the Governor of the Bank of Mexico, senior staff of several government ministries and agencies, representatives of regulatory agencies, and private sector representatives. Mr. Jimenez (OED) attended most meetings.

Mexico has accepted the obligations of Article VIII, sections 2, 3, and 4, and does not have restrictions on payments for current international transactions.

Comprehensive economic data are available for Mexico on a timely basis. It subscribes to the SDDS, and economic data are adequate to conduct surveillance.

I. Membership Status: Joined December 31, 1945; Article VIII.

II. General Resources Account:

SDR MillionPercent of Quota
Fund holdings of currency2,622.1672.32
Reserve position in Fund1,003.5827.68

III. SDR Department:

SDR MillionPercent of Allocation
Net cumulative allocation2,851.20100.00

IV. Outstanding Purchases and Loans: None

V. Latest Financial Arrangements:

TypeArrangementExpirationAmountAmount Drawn
DateDateApproved(SDR Million)
(SDR Million)
FCLCJan 10, 2011Jan 09, 201347,292.000.00
FCLCMar 25,2010Jan 09, 201131,528.000.00
FCLCApr 17, 2009Apr 16, 201031,528.000.00
Stand-ByJul 07, 1999Nov 30, 20003,103.001,939.50

VI. Projected Payments to the Fund (SDR million):

Charges / Interest0.541.

VII. Exchange Rate Arrangement: Mexico has a floating exchange rate regime since December 22, 1994. Mexico maintains an exchange system that is free of restrictions on the making of payments and transfers for current international transactions.

VIII. Article IV. Consultation: The last Article IV consultation was concluded by the Executive Board on March 10, 2010. The relevant staff report was IMF Country Report No. 10/71.

IX. Technical Assistance

2011FADCustom administration
2011FADTax policy
2010FADFiscal Risks Management
2009STANational Accounts
2009FADFiscal Framework
2008FADCustoms Administration
2007FADIntergovernmental Fiscal Relations
2007FADCustoms Administration
2007MCMAccounting and Budgeting Functions, BoM
2005STANational Accounts

X. Resident Representative: None


A. Relations with the World Bank

Mexico has had a longstanding partnership with the World Bank Group encompassing the delivery of the full menu of financial, knowledge, and coordination and convening services. The flexibility of the FY08–13 Country Partnership Strategy (CPS) was instrumental in helping Mexico adjusting to the large adverse shocks experienced during 2008–2009. The global economic downturn and tightening in financial conditions combined with the outbreak of the A (H1N1) influenza in April 2009 led much of the World Bank’s assistance to Mexico to focus on financial services while continue working on a broad knowledge agenda.

After a deep recession, Mexico is now experiencing a robust recovery. While Mexico has lowered IBRD lending to protect exposure from US$6.4 billion in FY10 to US$2.8 in FY11, the alignment of IBRD’s lending and knowledge program to critical strategic and global areas, like climate change and social safety nets, has continued to mature through innovative client-driven approaches. A critical challenge for the Bank now is to reach the poorer states in Mexico.

As of May 31, 2011, Mexico was the Bank’s second largest borrower with US$12.8 billion debt outstanding, representing 9.7 percent of the IBRD’s total portfolio. As of this date, Mexico had the fifth largest portfolio under supervision in terms of net IBRD commitments with US$7,552 million of which US$3,549 million remained undisbursed. The active portfolio comprised 19 IBRD projects. During FY11, the Bank approved five projects for a total lending amount of approximately US$2.8 billion. FY12 total new lending is envisaged at US$1.5 billion. A new CPS will jointly be prepared with the Government of Mexico in FY12 and will cover the period FY13–FY18.

B. Bank-Fund Collaboration under the JMAP

The Bank and Fund teams meet several times since the last Article IV consultation and agreed on the following priorities:

  • Strengthening the fiscal framework. Support the authorities efforts to assess fiscal risks, improve tax administration, evaluate tax policy and enhance cash management; with the Fund taking the lead in these areas.

  • Strengthening safety nets. Support the authorities conditional cash transfer program (oportunidades) which serves about 5.6 million poor families and ameliorating the impact of the global financial crisis on the poor, and expand the popular health insurance’s coverage of people without contributory social security; with the Bank taking the lead in these areas.

  • Addressing climate change. Support the authorities’ efforts to reduce Mexico’s carbon footprint, including increasing sources of renewable energy, and improving efficiency of lighting and appliances; with the bank taking the lead.

  • Financial sector surveillance. The Fund will continue with the surveillance of the financial sector. An FSAP update will take in the second half of 2011, a joint Bank-Fund effort.


The overall quality of Mexican statistics is good. A data ROSC for Mexico was completed on May 23, 2003 and was subsequently published as IMF Country Report No. 03/150. A data ROSC update was completed on October 8, 2010 and was published as IMF Country Report No. 10/330. There are various areas where improvements could be made. The authorities are aware of this situation and are continuing work in this regard. Mexico observes the Special Data Dissemination Standards (SDDS) and its metadata are posted on the Dissemination Standards Bulletin Board (DSBB). In a number of cases, the periodicity and timeliness of disseminated data exceed SDDS requirements.

Although some items of the balance of payments statistics conform to the fifth edition of the Balance of Payments Manual, a full transition has not yet been completed.1 Several measures to improve external debt statistics have been carried out, including the compilation of data on external liabilities of the private sector and publicly traded companies registered with the Mexican stock exchange (external debt outstanding, annual amortization schedule for the next four years broken down by maturity, and type of instrument). International reserves data are compiled according to the Operational Guidelines for the Data Template on International Reserves and Foreign Currency Liquidity of the IMF (2001).

The national accounts statistics generally follow the recommendations of the System of National Accounts, 1993 (1993 SNA). Source data and statistical techniques are sound and most statistical outputs sufficiently portray reality. A broad range of source data are available, with economic censuses every five years and a vast program of monthly and annual surveys. For most surveys, scientific sampling techniques are used. Nonetheless, most samples exclude a random sample of small enterprises. Changes in inventories are obtained as residuals, so there is no independent verification between the production and expenditure measures of GDP. Some statistical techniques need enhancement. For example taxes and subsidies on products at constant prices are estimated by applying the GDP growth rate; a deviation from best practice.

The concepts and definitions for both the CPI and PPI meet international standards. The PPI is only compiled by product and not by economic activity. Source data for the CPI and PPI are comprehensive and meet the needs for both indices. Price and product specification data collected for the fortnightly price survey, as well as expenditure data collected for the ENIGH, are processed and audited according to procedures established as part of the total quality management system ISO 9001.

The authorities compile fiscal statistics following national concepts, definitions, and classifications that make international comparison difficult. The statistics are comprehensive and timely, except for states and municipalities. The new government accounting law mandates accounting standards that follow international standards for all levels of government, and that take into account the information needs of international organizations and national accounts.

The authorities are committed to reporting government financial statistics in GFSM 2001 format, as well as data for the GFS Yearbook.

The methodological foundations of monetary statistics are generally sound. However, the recording of financial derivative and, to a lesser extent, repurchase agreements transactions are overstating the aggregated other depository corporations (ODC) balance sheet and survey. The accuracy and reliability of the monetary statistics are supported by comprehensive source data. The coverage of nonbank ODC is complete. Availability of data on other financial intermediaries such as insurance companies and pension funds allow for the construction of a financial corporations survey with full coverage of the Mexican financial system, which is published on a monthly basis in International Financial Statistics.

Mexico: Table of Common Indicators Required for Surveillance

As of June 23, 2011

Date of latest observationDate

Frequency of Data7Frequency of Reporting7Frequency of Publication7Memo Items:
Data Quality -Methodological soundness8Data Quality Accuracy and reliability9
Exchange RatesJune 2011June 2011DDD
International Reserve Assets and Reserve Liabilities of the Monetary Authorities1May 2011June 2011MMM
Reserve/Base MoneyMay 2011June 2011MD, MWLO, O, O, LOLO, O, O, O, O
Broad MoneyApril 2011June 2011MMM
Central Bank Balance SheetApril 2011June 2011WWW
Consolidated Balance Sheet of the Banking SystemMay 2011June 2011MMM
Interest Rates2June 2011June 2011DDD
Consumer Price IndexMay 2011June 2011Bi-WBi-WBi-WO, O, LNO, OLO, LNO, O, O, LNO
Revenue, Expenditure, Balance and Composition of Financing3- General Government4LO, LNO, LNO, OO, O, O, O, O
Revenue, Expenditure, Balance and Composition of Financing3- Central GovernmentApril 2011May 2011MMM
Stocks of Central Government and Central Government-Guaranteed Debt5April 2011May 2011MNAM
External Current Account BalanceQ1 2011May 2011QQQLO, LO, LNO, LOLO, O, O, O, LO
Exports and Imports of Goods and ServicesMay 2011June 2011MMBi-W
GDP/GNPQ1 2011May 2011QQQO, O, O, LOLO, O, LO, LO, O
Gross External DebtApril 2011June 2011MMM
International Investment Position 62010June 2011AAA


Adding to the standard net open position limits, Mexico’s regulation on FX operations is based on three pillars:

  • To minimize potential (balance sheet) losses from exchange rate changes, the net open position in foreign currency is limited to 15 percent of Tier-1 capital (including peso denominated products linked to the exchange rate).

  • To reduce the risk of losses from asset fire sales and potential instability in FX markets the Liquidity ratio on foreign currency requires that banks hold enough liquid FX assets to meet their short term obligations, and

  • The structural FX requirement mandates a balance in the medium term maturity structure of assets and liabilities.

Liquidity ratio. A foreign currency maturity ladder is constructed to compare a bank’s future cash inflows and outflows over a series of specified time periods. Banks need to hold enough FX liquid assets to cover the largest gap or net cash outflows (outflows minus inflows, where inflows include the “netting assets” described below as well as other inflows) for buckets of 1 day, 1–7 days, 1–30 days and 1–60 days. In addition, institutions must hold additional liquid assets for a percentage of all liabilities up to 60 days which are not covered by “netting assets” with the same or shorter maturity.

  • To compute inflows for the maturity ladder, haircuts are applied to “netting assets” depending on their quality, while inflows are classified according to maturity.2 Netting assets include term deposits, securities with secondary market that do not qualify as liquid assets, commercial paper due within 1 year, the amount of deposits and asset in investments and mutual funds which exceeds the limits to compute as liquid assets, but do not comprise inflows from the credit portfolio (the latter are only included as inflows when computing the gaps for the above mentioned buckets).

  • Regarding securities traded in secondary markets, they are computed as if they were due in 5 days, whereas commercial paper is computed as if it was due in 1 day. The amount of deposits and assets in investment and mutual funds which exceeds the limits to compute as liquid assets are classified according to their due date (deposits) or as if due in 7 days (investment and mutual funds). In addition, securities trading in secondary markets receive a haircut depending on their credit rating (see Table). With respect to outflows, sight deposits receive a special treatment and are classified according to their interest rate, which is an indicator of their stability or behavioral maturity.3

Table 1.Haircuts on Traded Securities
RatingValue after
S & PMoody’sdiscount as a
percentage of
market value
Investment grade
≥ AA−≥ Aa3100
Speculative grade
≤ BB≤ Ba20

Structural FX requirement. At the end of each day, banks need to have Net Foreign Currency Liabilities (NFCL) of less than 1.83 times its core capital. NFCL are defined as the difference between liabilities weighted by maturity (with an eight of 100 percent for maturities up to 1 year and decreasing weights for longer maturities) and assets weighted by maturity and degree of liquidity (with a 100 percent weight for liquid assets and a 50 percent weight for highly graded loans up to 1 year). Thus, a bank may increase the size of its balance sheet in foreign currency so long as it does not create a large imbalance between the maturities of its assets and liabilities. This regulation effectively precludes institutions from borrowing short term to fund long term credit in foreign currency (for instance, mortgages).

Table 2.Weights for Structural FX Requirement
Up to 1 year1.00
1 to 2 years0.20
2 to 3 years0.10
More than 3 years0.05
Type of assetWeight
Liquid Assets and other high quality assets with maturity up to a year, credit lines granted by foreign financial institutions, and FX and derivatives operations with highly rated counterparts.1.00
Outstanding loans graded A, B or C, as well as other assets and rights with maturity up to 1 year.0.50

Since the release of the balance of payments figures for the second quarter of 2010 (August, 25th, 2010), Banco de Mèxico has been publishing a new format that follows the guidelines of the fifth edition of the Balance of Payments Manual.

Assets eligible as liquid assets without haircut include: cash, deposits in the central bank, sight deposits or deposits due within 7 days at highly rated institutions (with a minimum rating of A-2 or P-2 granted by S&P or Moody’s), US T-bills, T-notes and T-bonds as well as securities issued by US agencies with an unconditional guarantee from the US Government, holdings in investment and mutual funds approved by the central bank, and irrevocable credit lines granted by foreign highly rated financial institutions. There is, however, a limit to the amount of deposits, holdings in investments and mutual funds and credit lines that can be used as liquid assets.

Assets associated to derivatives operations are considered both for the calculation of the GAPs and to net assets. Derivatives are also included, either as an asset or a liability. If derivatives are cash settled by differences, then only the difference is included as an inflow or an outflow, whereas if the derivative is settled by delivery of underlying assets, the full amount is recorded as an inflow or an outflow.

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