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Energy

UPDATE 1-IMF directors urge tax reform in Mexico once economy stabilizes

(Adds details from IMF statement, background)

MEXICO CITY, Nov 4 (Reuters) - Mexico should enact tax reform once a recovery from the COVID-19 pandemic has taken hold to boost the country’s ailing economy, according to recommendations outlined by International Monetary Fund (IMF) directors in a central bank statement on Wednesday.

The Washington-based IMF proposed a tax reform to support spending in the medium-term. Mexican President Andres Manuel Lopez Obrador has resisted raising taxes, although his administration has made efforts to increase tax collection and enforcement.

“Directors generally saw the need for announcement of a credible medium-term tax reform, to be implemented once the recovery is underway, to bolster the space for providing near-term support, close fiscal gaps, lower public debt and finance needed investment and social spending,” the IMF said.

Despite coming from the political left, Lopez Obrador has kept a tight lid on spending and borrowing during his two years in office.

The IMF pointed out that Mexico’s economy is expected to decline by 9% this year due to fallout from the pandemic.

IMF’s directors “recommended broadening the tax base, raising subnational taxes, and reducing VAT gaps while strengthening social safety nets.”

The government should also prioritize public spending to promote inclusive growth, the IMF said, in addition to making full use of an energy sector opening to private capital that Lopez Obrador has consistently resisted.

Some IMF directors said there may be scope for further monetary policy support by Mexico’s central bank, while safeguarding financial stability.

The Bank of Mexico has cut its benchmark interest rate for 11 consecutive monetary policy meetings since August 2019 in a bid to stimulate an economy that was already in recession before the pandemic. (Reporting by Anthony Esposito and Sharay Angulo; Editing by David Alire Garcia and Tom Brown)

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