IMF urges Mexico to undertake further tax reform

MEXICO CITY Tue Nov 26, 2013 6:55pm EST

Mexico's Minister of Economy Ildefonso Guajardo addresses the audience during a dialogue as part of the Global Cities Initiative conference in Mexico City November 14, 2013. REUTERS/Tomas Bravo

Mexico's Minister of Economy Ildefonso Guajardo addresses the audience during a dialogue as part of the Global Cities Initiative conference in Mexico City November 14, 2013.

Credit: Reuters/Tomas Bravo

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MEXICO CITY (Reuters) - Mexico's recent tax overhaul does not do enough to curb the government's dependence on oil revenue while other major reforms may not boost economic growth as much as authorities forecast, the International Monetary Fund said on Tuesday.

Mexico, Latin America's second biggest economy, has made "impressive" strides" in passing a series of major economic reforms that will help boost growth, the IMF said in a report after its annual health check of Mexico's economy.

However, the Washington-based IMF said "further efforts are likely to be needed" to improve non-oil income after lawmakers approved a tax bill at the end of October that was less broad in scope than the market had expected.

"With the prospect of declining oil production over the next decade, the federal government needs to beef up its collection on non-oil revenues," the IMF said in a report on the fiscal reform that accompanied its so-called Article IV consultation with Mexican authorities.

Those remarks come as another government reform is moving through Congress that aims to open up the state-controlled oil industry to private investors and boost crude output, which has fallen by a quarter since 2004.

Excluding revenue from state oil firm Pemex, Mexico's government only collects taxes worth about 10 percent of its gross domestic product, far less than its main peers in Latin America or in more developed economies.

REFORM EFFECTS

Last month the IMF slashed Mexico's 2013 growth outlook to 1.2 percent, down from the 2.9 percent it forecast in July, after the economy contracted in the second quarter on a slump in construction and weak government spending.

Data released last week showed Mexico's economy picked up steam in the third quarter to its fastest pace in over a year, and growth is seen strengthening in 2014.

The IMF expects the Mexican economy to grow 3 percent next year. Its report said that President Enrique Pena Nieto's reform program would lift annual average growth in 2015 to 2018 to between 3.5 percent and 4 percent, up from a previous estimate of annual growth rates of 3 percent to 3.25 percent.

The IMF outlook is more conservative than the Mexican government's estimates that growth will expand to 5.2 percent by 2017 and even higher in following years under the combined effect of telecommunications, banking, energy and tax reforms.

"The authorities believed that the reforms would have a more profound effect on growth," the IMF said. "The effects are difficult to measure at the beginning of this potentially transformative process."

The government hopes Congress will pass the energy bill aiming to draw investment to the oil industry before the end of 2013, but analysts expect its impact to take time.

(Reporting by Michael O'Boyle; Editing by Leslie Adler)

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