Home Research IMF IMF Recommends Mexico to Reform Pemex Business Plan, Encourage Private Participation in Power Sector

IMF Recommends Mexico to Reform Pemex Business Plan, Encourage Private Participation in Power Sector

IMF Recommends Mexico to Reform Pemex Business Plan, Encourage Private Participation in Power Sector

NEW YORK — The International Monetary Fund says Mexico’s economy is “rebounding from its deepest downturn in decades” and it is set to grow by 6.2% this year and 4% in 2022 spurred by U.S. growth and rising vaccination rates. Latin America’s second-largest economy should also reconsider Pemex business plans and changing course on energy policy.

In a concluding statement of the so-called Article IV the multilateral lender says that Mexico’s manufacturing and exports are above pre-pandemic levels, services are re-opening, and employment is recovering. “The authorities have successfully maintained external, financial, and fiscal stability in a very challenging period,” the IMF said.

The Washington-based institution urges Mexico to implement a more accommodative fiscal stance in 2022, which could have significant social and economic payoffs as the country recovers from the COVID-19 recession. Mexico has some fiscal space and enjoys comfortable market access that could be deployed to limit the human costs, according tot he statement. “Specifically, a permanent increase in spending of about 1½ percent of GDP in 2022 could help alleviate the pressures on the vulnerable, mitigate scarring, and secure the recovery.”

The IMF staff considers that Mexico can implement a permanent increase in spending of 1½% of its GDP in 2023 and 2024 for a total of 3% of GDP, “of roughly equal amounts for poverty alleviation, education and health, and quality public investment.”

But at the same time Mexico would need to apply measures that contain rising pension costs as well as reforms to Pemex’s business plan and a broad progressive tax reform, the statement said.

Energy Reform

Discussing key aspects of Mexico’s economy, the IMF favors “changing course on energy policy” since it would improve competitiveness and investment in the country. “Electricity prices for corporations remain notably above those in the U.S. and many other EMs. Despite these high costs, reliability of electricity supply is a rising concern,” according to the statement.

Leveraging Mexico’s large and diverse renewable energy resource base, encouraging private sector participation in electricity generation and hydrocarbon distribution, and strengthening the electricity grid would foster a cheaper, more reliable, sustainable, and competitive energy sector, the IMF said.

“Efforts to privilege state-owned energy producers and reverse previous reforms and the canceling of certain investment projects have weighed on investment and risk offsetting the growth benefits of other measures,” the IMF said in reference to supply-side necessary reforms.

Pemex, a Change is Needed

The IMF argues that Petroleos Mexicanos losses “are placing a burden on taxpayers and crowding out other more productive uses of fiscal resources,” which makes evident that “Pemex’s business plan needs to be reformed,” the document said.

The oil producer has been rattled by corruption scandals which underline “the critical importance of strengthening governance and procurement processes within the company”, the multilateral lender said.

“Further support for Pemex should be accompanied by a new strategy that prioritizes financial objectives (e.g., focus on profitable fields, sell non-core assets, postpone new refinery plans, and reform its costly pension scheme) and increases transparency. Partnering with private firms would leverage specialized expertise and help manage costs,” the document said.


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