Mexico: Request for an Arrangement Under the Flexible Credit Line and Cancellation of the Current Arrangement-Press Release; and Staff Report

This paper focuses on Mexico’s Request for an Arrangement Under the Flexible Credit Line (FCL) and Cancellation of the Current Arrangement. Mexico qualifies for the FCL by virtue of its very strong economic fundamentals and institutional policy frameworks and track record of macroeconomic performance and policy implementation. Economic activity in Mexico remains soft, constrained by needed fiscal consolidation and still restrictive monetary policy, as well as the dampening effect of trade tensions. The authorities have embarked on an appropriate recalibration of the policy mix, easing monetary policy amid reduced price pressures and unwinding the 2024 fiscal expansion. Going forward, more ambitious fiscal consolidation would prevent further upward drifts in public debt and create valuable fiscal space to cope with shocks. Mexico remains exposed to elevated external tail risks. Trade-related risks have risen since the last FCL review. On the other hand, financial conditions have become more accommodative and the country’s reserve buffers have increased. The new arrangement under the FCL will continue to play an important role in supporting the authorities’ macroeconomic strategy and provide insurance against tail risks while bolstering market confidence.