83496 Development Challenges Development Ending Solutions extreme poverty Promoting shared prosperity Country Ensuring Sustainable partnership growth strategy for the United Mexican States 2014-2019 IBRD IFC MIGA Regional Vice President: Hasan A. Tuluy Vice President for LAC: Jean Philippe Prosper Vice President and CFO: Michel Wormser Country Director: Gloria M. Grandolini Senior Manager: Roberto Albisetti Director of Economics and Sustainability: Ravi Vish Task Managers: Harold Bedoya Task Managers: Laura Vila and and Samuel Freije Jaya Anderman Toiber Task Manager: Dan Biller The Mexico Country Partnership Strategy was prepared by a joint World Bank Group team led by Harold Bedoya, Samuel Freije, Laura Vila, Gloriana Echeverria, and Dan Biller under the overall guidance of Gloria M. Grandolini, and Roberto Albisetti, Edith Quintrell, and Ravi Vish. Core team members included Jaya Anderman Toiber, Alexandra Ortiz, Wendy Cunningham, Eva M. Gutierrez, Sabine Hader, Jutta Kern, Karim Omar Lara Ayub, Gabriela Vidals and Karina M. Kashiwamoto. Valuable contributions were received from: Aline Coudouel, Andrea Coppola, Carlos Rodríguez Castelán, Daniel Villar, Eduardo Wallentin, Eguiar Lizundia González, Elizabeth Currie, Elizaveta Perova, Ernesto Sánchez-Triana, Jozef Draaisma, Kinnon Scott, Erwin Tiongson, Kiyomi Cadena, Santiago Garriga, Pedro Arizti, Luis de la Plaza Bringas, and Steen Byskov. Many other comments and suggestions were received from numerous participants at the concept review and operations committee meetings. Gabriela Vidals and Karim Lara Ayub prepared the CPS Completion Report under the guidance of Harold Bedoya. We would like to thank specially members of the Operationalizing the World Bank Goals Working Group who shared their insights with us: Ernesto May, Christoph Kurowski, John Lincoln Newman, and Gladys Lopez-Acevedo. Key government counterparts in developing the partnership strategy were: Juan Bosco Martí Ascencio, Gerardo González Anaya, Silvia Rodríguez Díaz, Luis Cartas Paredes, and Alexandra Alarcón Cisneros. Country partnership strategy for the United Mexican States October 23, 2013 Colombia and Mexico Country Management Unit Latin America and the Caribbean Region The International Finance Corporation, Mexico Regional Office Latin America and the Caribbean Region Multilateral Investment Guarantee Agency Country Partnership Strategy for the United Mexican States for the Period FY2014-2019 Copyright © 2013 by the International Bank for Reconstruction and Development / The World Bank. 1818 H Street, N.W. Washington, D.C. 20433, U.S.A. Internet: www.worldbank.org. All Rights Reserved Printing and Manufactured in Mexico / 2013 First Printing: October 23, 2013 The findings, interpretations, and conclusions expressed in this book are entirely those of the authors and should not be attributed in any manner to the World Bank, to its affiliated organizations, or to members of its Board of Executive Directors or the countries they represent. The World Bank does not guarantee the accuracy of the data included in this publication and accepts no responsibility for any consequence of their use. The boundaries, colors, denominations, and other information shown on any map in this volume do not imply on the part of the World Bank Group any judgment on the legal status of any territory or the endorsement or acceptance of such boundaries. Rights and Permissions The material in this publication is copyrighted. The World Bank encourages dissemination of its work and normally will promptly grant permission to reproduce portions of the work. For permission to reprint individual articles or chapters, please fax a request with complete information to Fernanda Zavaleta, Communications Officer – The World Bank Colombia and Mexico Fax (55) 5480-4222. All other queries on rights and licenses should be addressed to the Communications Officer, The World Bank Mexico at the above faxed to (55) 5480-4222. The World Bank Cover and Design: www.sonideas.com / Alejandro Espinosa Country Partnership Strategy for the United Mexican States for the Period FY2014-2019. – Mexico : The World Bank, 2013. 152 p. : tabs. + map 338.972/C68/2013-2019 1. Mexico – Productivity – Unleashing. -- 2. Mexico – Social Prosperity – Improve. – 3. Mexico – Public Finance and Government Efficiency – Strengthening. – 4. Mexico – Green, Promoting – Inclusive Growth. – 5. Productivity – Unleashing – Mexico. – 6. Social Prosperity – Improve – Mexico. – 7. Public Finance and Government Efficiency – Strengthening – Mexico. – 8. Green, Promoting – Inclusive – Mexico. CURRENCY EQUIVALENTS (Exchange rate effective as of October 23, 2013) Currency Unit = Mexican Pesos US$1.00 = 12.9352 FISCAL YEAR January 1 to December 31 WEIGHTS AND MEASURES Metric System ABBREVIATIONS AND ACRONYMS APL Adaptable Program Loan BANSEFI Banco del Ahorro Nacional y Servicios Financiero (Bank of Financial Services) BB Bank Budget CFE Comisión Federal de Electricidad (Federal Electricity Commission) CONACYT Consejo Nacional de Ciencia y Tecnología (National Council of Science and Technology) CONAFE Consejo Nacional de Fomento Educativo (National Council of Education Development) CONEVAL Consejo Nacional de Evaluación (National Council on Evaluation) CPPR Country Performance Portfolio Reviews CPS Country Partnership Strategy CTF Clean Technology Fund DPL Development Policy Loan ECD Early Childhood Development ENIGH Encuesta Nacional de Ingresos y Gastos de los Hogares (National Household Income and Expenditure Survey) EPI Environmental Performance Index ESMAP Energy Sector Management Assistance Program ESW Economic Sector Work FBS Fee-Based Services FIRST Financial Sector Reform and Strengthening Fund FONDEN Fondo de Desastres Naturales (Natural Disaster Fund) FY Fiscal Year GAC Governance and Anti-Corruption GDP Gross Domestic Product GEF Global Environmental Facility GHG Greenhouse Gas COUNTRY IADB Inter-American Development Bank PARTNERSHIP IBRD International Bank for Reconstruction and Development STRATEGY FOR THE UNITED ICT Information and Communications Technology MEXICAN IDA International Development Association STATES IDF Institutional Development Trust Fund 5 IEG Independent Evaluation Group IFC International Finance Corporation IMF International Monetary Fund IMSS Instituto Mexicano del Seguro Social (Mexican Social Security Institute) INADEM Instituto Nacional del Emprendedor (National Entrepreneurship Institute) INEGI Institutito Nacional de Estadística y Geografía (The National Institute of Statistics and Geography) ISSTE Instituto de Seguridad y Servicios Sociales de los Trabajadores del Estado (Mexican Institute of Social Security for State Officers) LAC Latin America and the Caribbean MIGA Multilateral Investment Guarantee Agency MoU Memorandum of Understanding MSME Micro, Small and Medium Size Enterprises NAMA National Appropriate Mitigation Actions NDP National Development Plan NHSFO Non-Honoring of Sovereign Financial Obligation OECD Organization for Economic Co-operation and Development PEC Programa de Escuelas de Calidad (School-based management program) PEMEX Petróleos Mexicanos (Mexico state oil company) PET Programa de Empleo Temporal (Temporary Employment Program) PKS Programmatic Knowledge Services PPP Public-Private Partnerships PROTRAM Programa de Transporte Masivo (Federal Mass Transit Program) PSIA Poverty and Social Impact Analysis RAS Reimbursable Advisory Services REDD+ Reducing Emissions from Deforestation and Degradation RESOL-V Red de Soluciones a la Violencia (Solutions to Violence Network) REPSS Régimen Estatal de Protección Social en Salud (Seguro Popular) R&D Research and Development SAT Servicio de Administración Tributaria (Mexico’s Tax Administration Service) SBL Single borrower limit SCI Savings and credit sector institutions SEDESOL Secretaría de Desarrollo Social (Ministry of Social Development) SHCP Secretaría de Hacienda y Crédito Público (Ministry of Finance) SHF Sociedad Hipotecaria Federal (Federal Mortgage Society) SIDAFF Sistema Integral de Administración Financiera Federal (Financial Management Information System) SME Small and Medium Size Enterprises SFP Secretaría de la Función de la Pública (Ministry of Public Administration) SSA Secretaría de Salud (Ministry of Health) STPS Secretaría del Trabajo y Previsión Social (Ministry of Labor and Social Welfare) TA Technical Assistance TELECOMM Telecomunicaciones de México (Telecommunications of Mexico) TRACE Tool for Rapid Assessment of City Energy COUNTRY UN United Nations PARTNERSHIP UNDP United Nations Development Programme STRATEGY FOR THE UNITED VAT Value Added Tax MEXICAN WBG World Bank Group STATES WSS Water and Sanitation Sector 6 Contents Executive Summary·········································································································································································································································································· 13 Diagnosis of Mexico’s Development Challenges······························································································································································································13 Selectivity Framework and Principles of Country Engagement······················································································································································13 WBG Program and Development Solutions ·········································································································································································································14 Risks and Mitigating Factors·················································································································································································································································14 I. Country Diagnosis········································································································································································································································································· 15 A. Poverty and Shared Prosperity Trends ··········································································································································································································15 An Innovative Measure of Poverty····································································································································································································································15 Profile and Trends·············································································································································································································································································15 Gender, Ethnicity, and Regional Disparities·········································································································································································································16 Shared Prosperity Indicators·················································································································································································································································17 Global Comparisons ······································································································································································································································································18 B. Challenges in Poverty Reduction and Promotion of Shared Prosperity ·············································································································19 II. Government of Mexico Vision································································································································································································································ 24 III. WBG Partnership: Selectivity Filtering Process and Country Engagement Model······································· 26 A. Lessons Learned from Previous CPS················································································································································································································26 B. Consultations on FY14-19 CPS···································································································································································································································27 C. Approach to Dynamic Selectivity ····························································································································································································································27 IV. WBG Partnership Strategy: Areas of Engagement····················································································································································· 31 Theme 1. Unleashing Productivity································································································································································································································31 COUNTRY Fostering sound financial sector development··································································································································································································31 PARTNERSHIP STRATEGY FOR THE UNITED MEXICAN STATES 7 Toward a more competitive business environment·······················································································································································································32 Fostering innovation for productivity and competitiveness···································································································································································32 Upgrading infrastructure ·························································································································································································································································32 Theme 2. Increasing Social Prosperity···················································································································································································································33 Promoting labor markets for inclusive growth··································································································································································································33 Promoting an integrated social protection system························································································································································································33 Theme 3. Strengthening Public Finances and Government Efficiency··························································································································34 Managing medium-term fiscal challenges at national and subnational levels··············································································································34 Enhancing service delivery through better public sector management·································································································································35 Implementing an integrated risk management strategy ·······································································································································································35 Theme 4. Promoting Green and Inclusive Growth····················································································································································································36 Reducing the footprint of growth······································································································································································································································36 Using natural resources in an optimal way···········································································································································································································37 V. Portfolio and Lending Program·························································································································································································································· 39 VI. Risks and Mitigation····························································································································································································································································· 41 Annex 1. Summary Mexico CPS Selectivity, WBG Development Solutions and Impact on WBG Goals······························································································································································································································································································· 43 Annex 1A. Results Framework - Mexico Country Partnership Strategy FY14-19······················································ 45 Annex 2. Mexico CPS FY08-13 Completion Report································································································································································ 52 Completion report················································································································································································································································································ 54 CPSCR Annex 3. Emerging Subnational Engagement – State of Oaxaca···················································································· 90 Annex 3. Macroeconomic Performance······································································································································································································ 91 COUNTRY PARTNERSHIP STRATEGY FOR THE UNITED MEXICAN STATES 8 Annex 4. Country Diagnostic: Overview Mexico Policy Notes···························································································································· 94 Annex 5. Poverty and Shared Prosperity Trends: The Challenge of Measuring the Goals of Development······························································································································································································································································· 113 Annex 6. Status of Gender Issues in Mexico and Entry Points to the CPS············································································· 123 Annex 7. Oaxaca Engagement: An Example of Comprehensive Engagement at Subnational Level············································································································································································································································································· 126 Annex 8. Selected Indicators of Bank Portfolio Performance and Management····················································· 132 Annex 9. Mexico IFC Committed and Disbursed Outstanding Investment Portfolio·········································· 133 Annex 10. Mexico Operations Portfolio (IBRD/IDA and Grants)················································································································ 135 Annex 11. Mexico Trust Fund Portfolio···································································································································································································· 136 Annex 12. Mexico at Glance············································································································································································································································ 138 Annex 13. Mexico – Social Indicators··········································································································································································································· 142 Annex 14. Mexico Key Economic Indicators···················································································································································································· 144 Annex 15. Mexico Key Exposure Indicators····················································································································································································· 145 Endnotes············································································································································································································································································································ 146 Map of Mexico··························································································································································································································································································· 148 COUNTRY PARTNERSHIP STRATEGY FOR THE UNITED MEXICAN STATES 9 Figures Box Box 1. Gender Issues in Mexico··········································································································································································································································21 Figures Figure 1. Monetary Poverty Rates, 1992-2012····································································································································································································16 Figure 2. Multi-dimensional Poverty Rates, 2012···························································································································································································16 Figure 3. Mexico’s multi-dimensional poverty measures by gender and ethnicity, 2012·····················································································18 Figure 4. Mexico Poverty Maps 2012·····························································································································································································································18 Figure 5. Shared Prosperity in Mexico·························································································································································································································18 Figure 6. Measures of shared prosperity by gender and ethnicity················································································································································19 Figure 7. Mexico Poverty Map···············································································································································································································································19 Figure 8. Unleashing productivity could accelerate growth and convergence to higher income levels················································20 Figure 9. Mexico is a large contributor to global CO2 emissions, mostly driven by the energy sector (including transport, energy generation and industry)··············································································································································································23 Figure 10. World Bank Thematic Focus Areas···································································································································································································27 Tables Table 1. Components of Multidimensional Poverty in Mexico····························································································································································17 Table 2. Mexico: Key economic indicators···············································································································································································································20 Table 3. Mexico CPS Selectivity Assessment········································································································································································································28 Table 4. World Bank Portfolio FY08-FY13·················································································································································································································39 Table 5. IFC Portfolio FY08-FY13·······································································································································································································································40 Table 6. Indicative FY14-15 IBRD Lending Program for Mexico·······················································································································································40 Annexes Annex 2 Table 1. Summary Assessment of Mexico CPS Outcome Areas·······························································································································56 Annex 2 Table 2. IBRD Portfolio Performance, FY08-13··········································································································································································67 Annex 2 Table 3. IFC Portfolio, FY08-13·····················································································································································································································67 CPSCR Annex 1. Summary of CPS Program Self-evaluation·····························································································································································70 CPSCR Annex 2. Evolution of World Bank Lending, FY08-13·····························································································································································89 Annex 3 Figure 1. Selected Economic Indicators·····························································································································································································93 COUNTRY Annex 4 Figure 1. Unleashing productivity could help Mexico accelerate growth and converge to higher income levels·95 PARTNERSHIP STRATEGY FOR Annex 4 Table 1. Mexico Sources of growth (1961–2011), annual average GDP growth························································································96 THE UNITED MEXICAN Annex 4 Figure 2. A more developed financial sector mobilizing domestic savings and credit could raise productivity···96 STATES Annex 4 Figure 3. Limited competition reduces firm productivity and competitiveness·······················································································97 10 Annex 4 Figure 4. Labor market rigidities, in particular dismissal costs, remain high·························································································99 Annex 4 Figure 5. Low investments in innovation and weak scientific institutions hinder productivity················································99 Annex 4 Figure 6. The low quality of education hinders innovation and productivity···························································································· 100 Annex 4 Figure 7. Poverty, inequality, and the vulnerability of the middle class increased in recent years································ 101 Annex 4 Figure 8. Labor income drove poverty reduction in Latin America and to a much lesser extent in Mexico (2000–2010)······································································································································································································································································ 102 Annex 4 Figure 9. A leading indicator of poverty tracking individuals with labor incomes insufficient to obtain the basic food basket- has been on the rise (2005-2011)················································································································································ 102 Annex 4 Figure 10. Mexico is a large contributor to global CO2 emissions (mostly driven by the energy sector, including transport, energy generation, manufacturing and industry)··········································································································· 105 Annex 4 Figure 11. Mexico is a mid-range environmental performer in Latin America···················································································· 105 Annex 4 Figure 12. Spatial Water Challenge in Mexico (most of the water supply is concentrated in the south while water demand is greatest in the more arid north of the country)············································································································ 106 Annex 4 Figure 13. Medium-term expenditure pressures related to population aging are mounting··············································· 108 Annex 4 Figure 14. Falling oil production and low tax revenues pose a challenge for revenue management·························· 109 Annex 4 Figure 15. Fiscal policy did not have much redistributive impact in Mexico and Latin America and the Caribbean···················································································································································································································································································· 110 Annex 4 Figure 17. Subnational public finances face low tax revenue and rising public debt since 2009······································ 110 Annex 4 Figure 16. Citizen trust in the state remains low in Mexico compared to its Latin American peers····························· 110 Annex 5 Table 1. Comparison of Poverty measures in Mexico······················································································································································ 114 Annex 5 Figure 1. Multidimensional Poverty 2012······················································································································································································ 115 Annex 5 Figure 2. Monetary Poverty Rates········································································································································································································· 116 Annex 5 Table 2. Multi-dimensional Poverty Measurement, 2010-2012····························································································································· 116 Annex 5 Table 3. Well-being and social deprivation indicators, 2010-2012····················································································································· 117 Annex 5 Figure 3. Measures of Shared Prosperity 2008-2012····················································································································································· 117 Annex 5 Figure 4. Evolution of Income Gini Coefficient, 1992-2010········································································································································· 117 Annex 5 Figure 5. Shared Prosperity in Mexico by States, 2008-2012··································································································································· 118 Annex 5 Figure 6. Mexico’s multidimensional poverty measures by gender and by ethnicity, 2012····················································· 118 Annex 5 Table 4. Extreme poverty headcount rates by Mexican state in 2012·············································································································· 119 Annex 5 Table 5. Moderate and extreme monetary poverty by Mexican state··············································································································· 120 Annex 5 Table 6. Population share by social deprivation····································································································································································· 121 Annex 5 Table 7. Percentage of population by social deprivation··············································································································································· 122 Annex 6 Table 1. Mexico CPS: Proposed Gender Specific Targets············································································································································ 125 COUNTRY PARTNERSHIP Annex 7 Table 1. Areas of Engagement with the State of Oaxaca by Type of Services Provided······························································· 128 STRATEGY FOR THE UNITED Annex 7 Table 2. Results Matrix – Oaxaca MoU FY14-15···································································································································································· 129 MEXICAN STATES 11 Executive Summary 1. The Mexico Country Partnership Strategy (CPS), cov- its monetary dimension increased slightly from 19.4 ering FY14-19, is fully aligned with the goals of Mexico’s to 20.0 percent during the same period. This indicates National Development Plan (NDP) for 2013-18 and sup- that the recent reduction of extreme poverty in Mexico ports the Government of Mexico’s development agenda has been the result of increased access to social goods of increased productivity and inclusive and sustainable and services, particularly health care, but labor market growth. The World Bank Group (WBG) program under the opportunities for earning a living are still limited. This is CPS fosters the twin goals of ending extreme poverty and due to long-term problems with productivity but also to a promoting shared prosperity in a sustainable manner. The series of shocks–the food price crisis, the global financial Mexico CPS includes a benchmarking of extreme poverty crisis, and the A1H1-flu epidemic prevention. A rebound and shared prosperity and a thorough ex ante diagnosis of of economic growth during 2010-12 boosted shared development challenges conducted in 2012 utilizing a set prosperity as income growth of the bottom 40 percent of country-specific Policy Notes. It includes a systematic of the population increased on average by 2.3 percent, effort at selectivity for highest impact of WBG activities higher than the average income growth of 0.6 percent for on the twin goals, WBG comparative advantage, and the total population for the same period. These national client demand. Finally, it presents a results-based WBG averages, however, hide important regional differences. thematic engagement program that integrates financial, Poverty rates in Chiapas, Guerrero, and Oaxaca, among knowledge, and convening services in a tailored package the poorest states in Mexico, are 10 times higher than in of development solutions. the richest states. Diagnosis of Mexico’s Development Challenges Selectivity Framework and Principles of Country Engagement 2. Mexico is an upper middle-income country with one of the highest per capita incomes among Latin American 4. The starting point of the WBG program proposed in countries. It is a member of the OECD and the G20. Mex- this CPS is a comprehensive diagnostic of development ico is an open economy with trade agreements with more challenges by WBG staff through a set of Policy Notes and than 40 countries. It has maintained solid macroeconomic by the Government through its own NDP. Departing from stability in times of crisis and financial sector resilience. the NDP’s 37 strategic development areas, a systematic Mexico’s innovations in social policy have been a matter filtering process then identifies 11 areas of engagement by of global learning. Yet, despite Mexico’s significant eco- aligning them with the WBG’s twin goals, WBG compar- nomic and social improvements, stagnant productivity ative advantage in Mexico, and country demand. Within and insufficient inclusiveness are the critical causes of these areas of engagement, WBG interventions can have COUNTRY persistent poverty, inequality, and regional disparities the greatest impact during the next 6 years on 12 specific PARTNERSHIP within Mexico. development outcomes. For each expected outcome of STRATEGY FOR the CPS, the country engagement proposes to deliver THE UNITED 3. Extreme poverty declined from over 11.3 percent tailored development solutions through packages of WBG MEXICAN to 9.8 percent between 2010 and 2012 according to financial, knowledge, and convening services. Based on STATES Mexico’s multi-dimensional poverty measure. However, the above process of selectivity assessment, the Bank 13 strategy: (i) exited several areas of previous CPS engage- that policy interventions supported by the WBG ought to ment (e.g., trade competitiveness, customs, judicial, and affect productivity to influence earnings; inclusiveness to influenza support programs); (ii) centered its ongoing and make sure that the poor have access to health, education new knowledge and convening program, including the and social security; and sustainability so that the ex- growing reimbursable advisory program, around seven se- pansion of urban development and basic utilities do not lective multi-year/multi-sector Programmatic Approaches deteriorate the resource base of the country. Given this for increased effectiveness and reduced transactions costs multi-dimensionality, and making use of a comprehen- (e.g., in innovation strategies for poor states; in integrating sive country diagnostic prepared by World Bank staff in social protection systems; in managing fiscal challenges; 2011-12, this strategy categorizes the main challenges to and in disaster risk management and urbanization); and reduce extreme poverty and promoting shared prosperity (iii) limited its new financial services to the green and into four themes to: (a) increase productivity and ensure inclusive growth and the social prosperity themes (e.g., its gains are widespread, (b) ensure that poorer segments Oaxaca water, community education, and second genera- of society benefit from basic social services and contrib- tion Oportunidades). Compared to the previous CPS, the ute to economic growth, (c) strengthen public finances selectivity process resulted in a compression from 5 to 4 and improve government efficiency, and (d) combine themes and in a reduction from 28 to 12 outcomes. the economic and environmental aspects of sustainable development. WBG Program and Development Solutions Risks and Mitigating Factors 5. To address the country’s main development challeng- es, the Mexico NDP focuses on: (a) achieving peace; (b) 7. Four potential risks to the CPS are: (a) sluggish making Mexico more inclusive; (c) improving the quality economic performance due to failure to increase com- of the education system; (d) promoting prosperity; and petitiveness and enact key structural reforms, (b) little (e) consolidating efforts to make Mexico a responsible room for countercyclical lending by IBRD in the event international player. The NDP also adopts three crosscut- of global or local shocks, (c) incomplete or deficient ting strategies: democratize productivity, foster a modern program implementation due to complexities of the WBG government, and integrate a gender perspective. The CPS program at the national and subnational levels, and (d) program supports these efforts through focused and selec- crime and violence. Three main approaches are identi- tive interventions integrating the WBG goals of reducing fied to mitigate these risks. First, to address global or extreme poverty and promoting shared prosperity with local shocks, the WBG is undertaking a comprehensive Mexico’s NDP goals, with special attention to states with assessment of its financial instruments to provide viable the highest poverty rates. alternatives to the authorities. Second, in mitigating program risks, the management of thematic business 6. This CPS proposes a WBG program focused on those plans and programmatic approaches around results will areas that are expected to have the greatest impact on help focus attention to strategic outcomes and portfolio improvements in poverty and shared prosperity. Poverty performance while maintaining the flexibility to adjust to is measured by indicators of access to health, education, country circumstances and build in continuous learning. nutrition, social security, housing, basic utilities as well Third, the WBG engagement is not concentrated in areas as by household income levels, the latter also being key of high criminality, reducing the chances of negative for gauging advances in shared prosperity. This means impact to the program. COUNTRY PARTNERSHIP STRATEGY FOR THE UNITED MEXICAN STATES 14 I. Country Diagnosis 1. The Mexico Country Partnership Strategy (CPS) covers FY14 to FY19 and is fully aligned with the goals of Mexico’s National Development Plan (NDP) 2013-2018. The strategy also focuses on the World Bank Group (WBG) twin goals of ending extreme poverty and promoting shared prosperity in a sustainable manner. This CPS document has five main parts. Part I summarizes a country analysis based on a set of policy notes and also includes a poverty assessment to benchmark poverty and shared prosperity trends at the global, national, and subnational levels. Part II summarizes the goals and strategies underpinning Mexico’s NDP for 2013-18. Parts III and IV explain the principles and the content of the WBG partnership with Mexico for FY14-19. Parts V and VI describe the financial, operational, and fiduciary underpinnings of the activities postulated and the risks facing the strategy. Finally, the annexes provide the results framework, detailed country diagnostic and poverty assessment, assessment of the previous CPS, gender dimensions, and an overview of the emerging WBG engagement in the State of Oaxaca. A. Poverty and Shared the World Bank’s extreme poverty line marker of Prosperity Trends US$1.25 per day. As of March 2012, the monthly food poverty line, also called “minimum well-being” (bienestar económico mínimo), was equivalent to approximately US$4.0 per day in urban areas and US$2.9 per day in An Innovative Measure of Poverty rural areas at purchasing power parity. The implication is that using the World Bank’s measure places 4.4 percent 2. Mexico is the first country in Latin America of the population below the extreme poverty line, while to adopt a Multi-dimensional Poverty Index as its using Mexico’s monetary measure of extreme poverty official poverty measure. Mexico’s official poverty places approximately 20 percent of the population below measure includes both monetary and non-monetary the official minimum well-being line. In contrast, in using indicators, with an indicator of monetary well-being the Mexican official multi-dimensional measure, which (measured by income below a nationally defined poverty includes both monetary and non-monetary well-being, 9.8 line) as one dimension, and access to social goods and percent of the population would be below the poverty line. services as another dimension. To be considered poor in Mexico, a person has income below the poverty line and has at least one deprivation in terms of housing, Profile and Trends infrastructure, education, health, social security, or food security. An extremely poor person has income below the 4. Monetary poverty rose between 2006 and 2012, minimum well-being line and suffers from three or more breaking a decade-long trend of poverty reduction deprivations. Thus, income poverty alone does not make in Mexico. A long-term view using data spanning two one poor nor can income growth alone move one out of decades of monetary measures of poverty shows that poverty.1 These multiple dimensions underline important monetary poverty rates in 2012 are similar to the rates in differences between the poorest and richest states in 1992: the net reduction of moderate and extreme poverty Mexico, highlighting the importance of reducing extreme was only 0.8 and 1.7 percentage points, respectively, over COUNTRY poverty as well as the shared prosperity agenda. This new 20 years (Figure 1). PARTNERSHIP set of poverty indicators will also serve as initial indica- STRATEGY FOR tive reference points to assess the impact of the policies 5. Between 2006 and 2012 the extreme poverty THE UNITED and programs proposed in this strategy. rate (food poverty or pobreza alimentaria) in- MEXICAN creased from 14.0 percent to 19.7 percent (affect- STATES 3. Mexico’s extreme poverty line is higher than ing 23.1 million people). Extreme poverty increased 15 ••FIGURE 1. Monetary Poverty Rates, 1992-2012 ••FIGURE 2. Multi-dimensional Poverty Rates, 2012 Income 80 Vulnerable by gaps in social right 69.0 Non poor 70 63.7 and 33.5 million people Non 60 53.6 28.60% vulnerable 53.1 51.1 52.3 1.8 average gaps 50.0 47.8 23.2 million 50 52.4 47.2 47.0 42.9 19.80% Poverty Headcount (%) 40 37.4 33.3 Economic well being 30 24.1 line 21.4 20.0 Minimum Vulnerable 17.4 18.2 18.6 18.8 19.7 20 14.0 well being by Income 21.2 Extreme Moderately line 7.2 million poor Poor 6.20% 10 11.5 million 41.8 million 9.80% 35.70% 0 1992 1994 1996 1998 2000 2002 2004 2005 2006 2008 2010 2012 6 5 4 3 2 1 0 Extreme poverty Moderate poverty Gaps in social rights Source: CONEVAL using the traditional ENIGH 1992-2012. Note: Estimations corresponding to 2006-12 use the adjusted expansion factors from the 2010 Population Census. Source: CONEVAL (2013) Comunicado de Prensa 003. significantly during the period 2006-08 (when the affect- included in the measure, particularly healthcare; ed population increased by 4.7 percentage points) and but the rise of its monetary component indicates stagnated in the years after, hovering around 19 percent. that labor market opportunities for earning a living Until 2006, Mexico kept pace with the region in poverty are still limited. The largest statistically significant reduction. Nevertheless, since 2008 the economy suffered improvement was in access to health care, where 8.2 a series of shocks — food price crisis, global financial million more people gained access (Table 1). The only crisis, the AH1N1-flu epidemic — that slowed economic social deprivation for which the share of the population growth and reversed the reduction in monetary poverty. increased was access to social security. The increase in the deprivation to social security arises mainly from the 6. The multi-dimensional measure, which allows lack of access among the population in the labor force. for a more nuanced and complex view of poverty, shows a decline in extreme poverty.2 According to this measure, extreme poverty declined from 11.3 Gender, Ethnicity, and Regional Disparities percent to 9.8 percent between 2010 and 2012 (Figure 2). This measure not only gauges extreme and 8. Gender and ethnicity specific estimates indicate moderate poverty but also calls attention to the vulnerable important differences across groups. From 2010 to population. Vulnerability of incomes (people with no lack 2012, the extreme poverty rate of the Multi-dimensional in basic needs but insufficient income) represented 6.2 Poverty Index was equally reduced among men and fe- percent of the population in 2012, a 0.3 percent increase males by 1.5 percentage points. However, in 2012, there from 2010. Vulnerability by social needs (those with were 1.5 million fewer men than women living in moderate earnings above the poverty line but without access to at poverty; but 300,000 more women than men live in ex- least one basic service) reached 28.6 percent, slightly treme poverty. Poverty among the indigenous population higher than the 28.1 percent in 2010. Only 19.8 percent of has fallen faster, but their poverty levels remain higher Mexicans did not suffer either earnings or basic services than among non-indigenous population. Extreme poverty gaps in 2012 (Table 1). These numbers indicate very little among indigenous population decreased 7.2 percentage mobility (i.e., families exiting poverty or vulnerability and points, lifting more than 800,000 people out of poverty. entering the middle class). A recent World Bank study Despite this progress, 8.2 million indigenous people COUNTRY finds that Mexico is one of the countries in the region with still live in poverty, of which 3.5 million are among the PARTNERSHIP STRATEGY FOR less income mobility and whose low economic growth is extreme poor (Figure 3). THE UNITED associated with little growth of the middle class.3 MEXICAN 9. Eliminating extreme poverty is a critical chal- STATES 7. The decline in multi-dimensional poverty is due lenge in Mexico’s poorer states. The national rate of to increasing access to almost all the social rights extreme poverty masks important regional differences. 16 ••TABLE 1. Components of Multidimensional Poverty in Mexico Percentage Change Total Average Indicators 2010 2012 2010-2012 2010 2012 2010 2012 Social Deprivation Indicators Educational gap 20.7 19.2 -1.4*** 23.7 22.6 3.1 2.9 Access to healthcare 29.2 21.5 -7.7*** 33.5 25.3 3.0 2.8 Access to social security 60.7 61.2 0.5 69.6 71.8 2.5 2.3 Quality and spaces of the dwelling 15.2 13.6 -1.6*** 17.4 15.9 3.6 3.4 Basic services in the dwelling 22.9 21.2 -1.7*** 26.3 24.9 3.3 3.2 Food Security 24.8 23.3 -1.5* 28.4 27.4 3.0 2.9 Well-being Population with an income below 19.4 20.0 0.6 22.2 23.5 2.9 2.5 the minimum well-being line Population with an income below the well-being line 52.0 51.6 -0.4 59.6 60.6 2.3 2.1 Poverty Poor 46.1 45.5 -0.6 52.8 53.3 2.6 2.4 Moderate Poor 34.8 35.7 0.9 39.8 41.8 2.2 2.0 Extreme Poor 11.3 9.8 -1.5*** 13.0 11.5 3.8 3.7 Vulnerable population due to social deprivations 28.1 28.6 0.5 32.1 33.5 1.9 1.8 Vulnerable Population due to income 5.9 6.2 0.3 6.7 7.2 0.0 0.0 Non-poor and vulnerable population 19.9 19.8 -0.2 22.8 23.2 0.0 0.0 Social Deprivation Population with one or more social deprivation 74.2 74.1 -0.1 85.0 86.9 2.3 2.2 Population with three or more social deprivation 28.2 23.9 -4.3*** 32.4 28.1 3.6 3.5 Source: CONEVAL using the MCS-ENIGH 2010 and 2012. Note: Significance levels *10%, **5% and ***1%. Chiapas, Guerrero, and Oaxaca have extreme poverty Shared Prosperity Indicators rates of 32.2, 31.7, and 23.2 percent, respectively. These are more than 10 times higher than the poverty rates of 10. Regional disparities highlight the importance Nuevo Leon, Distrito Federal, and Baja California (2.4, of promoting shared prosperity in Mexico. For the 2.5, and 2.7, respectively). One out of 3 Mexicans in period 2010-12, Mexico’s income growth for the bottom poverty lives in Chiapas, Guerrero, or Oaxaca (Figure 40 percent population had an average annual increase of 4). Around 23.5 million Mexicans or 20 percent of Mex- 2.3 percent, higher than the income growth of 0.6 percent ico’s population live below the official line of minimum for the total population (Figure 5). The increase did not well-being of less than US$4.0 a day in urban areas and compensate the drop between 2008 and 2010 when in- US$2.9 in rural areas. This national average contrasts come growth of the bottom 40 percent decreased slightly with the high dispersion of poverty rates over the territory: more than the total population (2.4 percent compared to COUNTRY 14 states out of the 32 have populations with monetary 2.9 percent). Looking at the entire period 2008-12, the PARTNERSHIP extreme poverty rates above the 30 percent mark. This average income growth of the bottom 40 percent was STRATEGY FOR indicates that Mexico has been able to increase the cover- negative (but the decline was less pronounced than for THE UNITED age of social goods and services like basic education and the overall population). These recent trends in shared MEXICAN health but labor market opportunities for earning a living prosperity are accompanied by a reduction of income STATES are still very limited. inequality for the period 2010-2012. 17 ••FIGURE 3. Mexico’s multi-dimensional poverty measures by gender and ethnicity, 2012 80 50 37.0 (4.2 mil) 41.7 40 60 (4.7 mil) 30 34.9 36.0 34.7 40 35.3 34.5 35.0 (35.6 mil) (37.1 mil) 20 20 10 37.8 30.6 8.4 7.6 11.3 9.9 11.3 9.8 0 0 2010 2012 2010 2012 2010 2012 2010 2012 Indigenous Non-indigenous Women Men Extreme Poor Moderate poor ••FIGURE 4. Mexico Poverty Maps 2012 ••FIGURE 5. Shared Prosperity in Mexico (CONEVAL’s multi-dimensional poverty) (Annualized growth rate mean income of total population versus bottom 40 percent) 3% 2% 1% Annualized Growth Rate (%) 0% -1% 30, 100 20, 30 -2% 10, 20 5, 10 -3% 0, 5 -4% Source Figures 3 and 4: CONEVAL using MCS-ENIGH 2012. 2008-2010 2010-2012 2008-2012 Annualized Growth Rate Mean Income Bottom 40% Annualized Growth Rate Mean Income Total Population 11. Looking at shared prosperity by gender or Source: Author calculations data from MCS-ENIGH 2008-12. ethnicity shows important differences. The bottom 40 percent of female-headed households experienced negative growth in all periods considered (Figure 6). Between 2008 and 2010, the bottom 40 percent of the The extreme poor account for 5.2 million Mexicans and indigenous households were severely affected as incomes represent around 0.5 percent of the global population in decreased by 7.6 percent. However, this group was able extreme poverty. Eradicating extreme poverty in Mexico to fully recover the following period when its income would have a small, though not unimportant, impact on increased by 10.6 percent. the WBG’s global target of reducing extreme poverty by 2030. COUNTRY PARTNERSHIP STRATEGY FOR Global Comparisons 13. Despite its limited magnitude, extreme pover- THE UNITED ty, defined by US$1.25 per day, is a stark reality in MEXICAN 12. Using the international poverty line of some Mexican states. Using the US$1.25 line (equiv- STATES US$1.25 per day, only 4.4 percent of Mexico’s alent to around Mex$335 per month at 2012 nominal population lived in extreme poverty in 2012. prices), extreme poverty rates range from 15.2 and 11.9 18 ••FIGURE 6. Measures of shared prosperity by gender and ethnicity 15% 4% 2.90% 3% 10.61% 10% 2% Annualized Growth Rate (%) 1% Annualized Growth Rate (%) 5% 0% 1.44% 1.08% -0.29% -0.37% -1% 0% -0.69% -1.09% -0.79% -2% -2.97% -5% -3% -4% -3.53% -7.63% -10% 2008-2010 2010-2012 2008-2012 2008-2010 2010-2012 2008-2012 Bottom 40% Male household heads Bottom 40% Female household head Bottom 40% Non-Indigenous Bottom 40% Indigenous household head household head Source: Author calculations using data from MCS-ENIGH 2008-12 ••FIGURE 7. Mexico Poverty Map (Monetary poverty headcount rates at US$1.25) percent in Oaxaca and Chiapas, respectively, to virtual elimination rates of 1.6 or 0.7 percent in Nuevo Leon and Distrito Federal, respectively. Actually, 41 percent of the Mexican population in extreme poverty resides in Chiapas, Guerrero, and Oaxaca (Figure 7). This reality highlights the importance of a subnational perspective when aiming at eliminating extreme poverty. B. Challenges in Poverty Reduction and Promotion 30, 100 20, 30 of Shared Prosperity 10, 20 5, 10 14. Mexico has achieved remarkable economic 0, 5 and social progress over the past two decades; yet poverty reversed its downward trend, and inequal- Source: World Bank calculations using data from MCS ity has leveled off at very high levels since 2006. Therefore, in order to influence Mexico’s poverty and inequality measures, policy interventions ought to affect 15. Mexico’s solid macroeconomic management productivity to influence earnings; inclusiveness to make stands out in a global environment of higher volatil- sure that the poor have access to health, education and ity and lower growth. Economic activity fully recovered social security; and sustainability so that expansion of ur- from the severe contraction experienced following the global ban development and basic utilities does not deteriorate financial crisis and continued growth of exports, domestic Mexico’s resource base. Making use of comprehensive investment and consumption managed to close the output country analysis prepared by World Bank staff in 2012 gap by the end of 2012. A track-record of prudent monetary (http://www.worldbank.org/en/country/mexico/research/ and fiscal policies provided the framework, confidence and all) this strategy categorizes four main challenges to buffers required for a rapid rebound of economic activity. reduce extreme poverty and promoting shared prosperity: More recently, a global slowdown, aggravated by the impact COUNTRY (a) increase productivity and ensure that gains are wide- of fiscal consolidation and a slow start of public investment PARTNERSHIP spread; (b) ensure that poorer segments of society benefit led to a significant deceleration of economic growth in STRATEGY FOR from basic social services and contribute to economic Mexico widening the output gap again. This deceleration THE UNITED growth; (c) strengthen public finances and government bodes for a low GDP growth of around 1.5 percent in year MEXICAN efficiency; and (d) combine economic and environmental 2013, with relatively stable exchange rates, inflation and STATES aspects of sustainable development.4 current account deficits (Table 2). Economic growth is 19 ••TABLE 2. Mexico: Key economic indicators   2009 2010 2011 2012 2013 (est) 2014 (proj.) Real GDP growth (%) -4.7 5.1 4.0 3.8 1.5 3.5 Unemployment (% of labor force) 4.8 4.9 4.5 4.4 5.01 ..  Headline Inflation (end-of-period %) 5.3 4.4 3.8 3.6 3.6 3.5 Exchange rate ( MXN/US$, year average) 13.5 12.6 12.4 13.2 12.7 ..  Monetary Policy Rate (% - average) 5.6 4.5 4.5 4.5 4.02 ..  Public Sector Borrowing -2.6 -3.5 -2.7 -3.2 -2.9  -4.1 Requirements (as % of GDP) Current account balance (as % of GDP) -0.5 -0.3 -1.0 -1.2 -1.5 -1.5 Source: Bank staff based on INEGI, SHCP and Banco de Mexico. (1) Average for first half 2013 (2) At the end of September 2013 expected to recover in 2014 following strengthening of 17. Mexico’s trailing productivity growth partially external demand and the implementation of monetary and explains its slow income convergence. The country’s fiscal policies in support of economic activity.5 growth has largely been driven by capital and labor accu- mulation and not by growth in productivity, measured by 16. Despite excellent short-term macroeconomic either average output per worker or combined efficiency management during the 2009-10 global financial of labor and capital. While physical capital accumulation crisis, slow long-run productivity growth and lack of rates are within a reasonable range by international convergence remain serious problems. Mexico has en- standards, productivity growth is lacking. Productivity joyed macroeconomic and financial stability, market-orient- collapsed during the 1980s and regained some ground ed economic policy reforms, openness to foreign trade and since the early-nineties, but slow productivity growth investment, and a “demographic bonus” through a growing and recurrent shocks—in 1995, 2001 and 2009—have working-age population. But it has not had sustained prevented productivity to recover to its former levels. The high-growth rates, failing to close the gap with high-income economic literature offers many explanations for low pro- economies. Over the past decade, the economy grew at less ductivity growth, all of which are relevant in the Mexican than 2 percent annually, well below the regional average of context: inequality, underdeveloped financial system, 4 percent. Its per capita income has remained at about 30 regulatory barriers for doing business, uncompetitive percent of that of the U.S. By comparison, East Asia Tigers’ markets for utilities, weak innovation and limited market per capita income tripled over the past three decades and competition, labor market rigidities, and scarce skilled is currently about 60 percent of that of the U.S. (Figure 8). labor. ••FIGURE 8. Unleashing productivity could accelerate growth and convergence to higher income levels (GDP PPP per capita, percent of the United States) Growth in income per capita 1960-2012 90 3.00 1960=100 80 2.75 70 2.50 60 2.25 50 2.00 40 1.75 30 1.50 20 1.25 COUNTRY 10 1.00 PARTNERSHIP STRATEGY FOR 0 0.75 2011 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 THE UNITED MEXICAN LAC East Asian Tigers Mexico GDP per capita GDP per worker TFP STATES Source: Penn World Tables; and World Bank staff calculations. In this graph, for Asian Tigers we considered Korea, Hong Kong SAR, China, Singapore and Taiwan, China. 20 18. High inequality and persistent poverty hamper and coverage gaps. Labor market programs overlap and productivity and are in turn perpetuated by low are duplicative. Three health insurance programs operate productivity. Inequity of opportunity in access to key eco- in parallel with little coordination.9 The social protection nomic and social services (such as education, credit, and system lacks a range of mechanisms to mitigate the infrastructure) prevents a large segment of the population impact of economic shocks; and those that do exist are from fully realizing their economic potential. This reduces under-utilized by the poor. More coverage in services for productivity, slows growth, and perpetuates existing pov- employability and intermediation, unemployment protec- erty and income inequality. Breaking this vicious circle is tion, and pension systems are also needed. Furthermore, difficult and requires an integrated reform agenda focused expenditure in some social programs such as contributory on mutually reinforcing economic and social objectives. pensions, agriculture development and gasoline subsidies are markedly regressive. Finally, gender gaps in areas 19. A comprehensive structural reform agenda is ranging from economic opportunities, prevention of vio- needed to help boost productivity. Mexico’s financial lence and equal treatment and rights, can still experience sector is small for the country’s stage of development, much improvement (Box 1 and Annex 6). impeding the channeling of financial savings into long-term productive investments. Commercial bank credit to the pri- vate sector is well below the level in countries with similar ••BOX 1. Gender Issues in Mexico characteristics and below the regional average, and half the population still does not use financial services. Concentrat- In the last decade, much progress has been ed markets, restrictive regulation, and anticompetitive be- made toward greater gender equality in Mex- havior hamper firm productivity and economic growth, with ico. Between 2005 and 2010 the average years of some estimation placing such costs at 1 percentage point schooling went up from 7.9 to 8.4 for women and of GDP growth each year.6 Productivity is also constrained from 8.4 to 8.7 for men. The proportion of women by the low quality of education and inefficient matching in the House of Deputies has increased from 17.4 of workers and firms. The sector composition of jobs has percent in 2000 to 36.8 percent in the 2013. Equal changed over the past decade, with a decline in the share of treatment and rights, non-violence, public expen- employment in the tradable sectors and a rise in the services diture, awareness of unpaid household work, and sector, where informality and low productivity jobs concen- political participation are issues incorporated into trate.7 Mexico has achieved near universal primary school the public agenda. completion and over the past decade the performance of Mexican students on the PISA international learning test However, despite progress in promulgation of (measuring largely cognitive skills) has improved, but it laws and budget increases to enhance gender still lags behind its Latin American and OECD peers.8 equality, major issues still need to be addressed. Maternal mortality is also a persistent public health 20. Faster productivity growth will also require issue in Mexico with slow progress in alleviating the improvements in infrastructure, particularly in tele- problem (from 60 deaths per 100,000 live births in communications and trade logistics. Mobile phone 2002 to 51 in 2010). Between 2006 and 2011 the penetration is one of the lowest in the Latin America, and incidence of violence against women perpetrated in fast broadband is scarce and expensive. Mexico also needs their last relationship increased from 43.2 percent to to increase digital literacy to close the digital divide. The 46.1 percent in spite of public actions to combat it. recent National Digital Plan has four axes for tackling challenges in this area: e-government, innovation in ICT, This CPS will support the implementation of citizen participation, and open data. With regard to trade, the NDP agenda on gender equality. Given its low investment in ports and logistics has resulted in a cross-cutting nature, the package of development diminished capacity to support trade. Mexico ranks 47th on solutions on gender will bridge the different themes the overall Logistics Performance Index, with weak score of this CPS.10 Knowledge products will benchmark, on customs, but also low score on infrastructure, logistics diagnose, and make policy recommendations for fur- competence, and international shipments. Logistics costs thering gender equality related to productivity, social as percentage of GDP are 14 percent in Mexico, while for protection, and environmental policy. Conferences, OECD economies this percentage is less than 10 percent. seminars, and other dissemination and knowledge exchange activities will follow. Financing activities 21. In addition to addressing challenges for faster might also materialize provided there is client de- productivity growth, reforms in social policy are mand. Key initial efforts will be focused on assisting COUNTRY also needed for reducing poverty and inequality. federal, state, and municipal agencies responsible for PARTNERSHIP Despite recent progress, social protection faces import- gender issues. Preliminary contacts are under way STRATEGY FOR ant equity and efficiency challenges. Mexico’s social with Chiapas to develop a package of development THE UNITED protection system includes contributory social security solutions to accompany their state gender initiative. MEXICAN schemes, social assistance, and labor market programs. STATES But the system suffers from fragmentation, weak design, 21 22. Addressing the challenges of ending poverty and including young children, the elderly, and the rural poor. promoting shared prosperity require a well-funded As Mexico grows and industrializes, demands on common and effective government. Mexico’s falling oil reve- property natural resources such as water and forests will nues and rising public spending needs require increased also continue to rise. Moreover, in terms of the environ- tax revenue and more efficient and better targeted public mental footprint of the urban economy, a number of policy spending. An integral fiscal reform is needed that broad- challenges still remain in the areas of land use planning, ens the tax base, narrows special regimes or preferential waste collection, urban pollution, and energy efficiency.12 rates, and generates information flows that facilitate tax compliance and boost tax revenue. On the expenditures 25. Mexico is highly vulnerable to climate change, which side, three main areas need special attention: (a) increas- is anticipated to exacerbate the country’s development ing transparency; operational efficiency and progressivity challenges. World Bank studies estimated that climate of public expenditures; (b) improving public sector perfor- change could slow down the pace of poverty reduction mance through better budget and financial management; by 2.4 percentage points by 2030, meaning an extra 2.9 and (c) adopting a systemic coverage of pending risks million people would remain in poverty. The consequenc- (e.g., natural disasters, commodity prices variation, and es of climate change will vary across social groups and subnational fiscal distress).11 throughout the country’s territory, depending on factors such as exposure to hazards and climatic variability, 23. Three challenges related to tax collection, sensitivity, and adaptive capacity. Poor and indigenous federal transfers, and risk vulnerability deserve groups who depend on climate-sensitive sources of in- special attention. First, tax collection is insuffi- come could suffer the most significant impacts. cient. If federal and local taxes and social security are included, Mexico has the lowest fiscal pressure among 26. As one of the largest contributors of carbon dioxide OECD member states and is among the lowest com- (CO2) emissions in Latin America, Mexico has adopted pared to similar Latin American countries. Second, an ambitious plan to drive down greenhouse gas (GHG) dependence on federal transfers amounts to about 90 emissions (Figure 9). Mexico ranks 12th in the world in percent of subnational public revenue. This imbal- CO2 emissions (471.46 million tons). The climate change ance has lessened the states’ incentives to raise their agenda includes a partnership with the states as well as own revenue and has led some to financial distress the recently approved General Climate Change Bill (Ley because of excessive, sometimes unregistered debt. General de Cambio Climático), which calls for a 30 per- Third, budgetary disruptions due to growing global cent CO2 reduction by 2020 and a 50 percent reduction by risks are likely. Public finances are vulnerable to a 2050 (compared with 2000 level). Mexican cities, which variety of shocks related to national and international account for more than 84 percent of the country’s GDP, macroeconomic fluctuations, demographic contin- generate 75 percent of the country’s GHG emissions. gencies, and natural disasters. Around 41 percent of Therefore, Mexico has made significant investments to Mexico’s territory and 31 percent of its population are improve air quality in cities. Sulfur content in fuels has exposed to hurricanes, storms, floods, earthquakes, been significantly reduced over the last decade while an and volcanic eruptions. In economic terms, 70 percent increasing number of cities and metropolitan areas have of GDP is considered to be at risk from two hazards or adopted an air quality program (PROAIRE) with targeted more. The 2011 World Bank study, Social Dimensions measures to arrest air pollution. In addition, improved of Climate Change in Mexico, shows that 70 percent vehicle technologies have helped reduce emissions. of the poorest 125 municipalities are highly prone However, these trends have been offset by the staggering to hydro-meteorological hazards such as floods and increase of private vehicle ownership which rose by more hurricanes. than 50 percent, from 13.4 million in 2004 to 21.6 million in 2010.13 24. Environmental policy must also be an integral part of Mexico’s development agenda as a means to 27. Energy subsidies arguably constitute the most support the well-being of current and future gen- important market impediment for a transition to a erations. Natural resource capital — forests, protected green-growth development pathway. Between 2005 areas, agricultural lands, energy, and minerals — is an and 2009, subsidies of electricity, diesel, gasoline, and important contributor to Mexico’s wealth. Natural resourc- liquefied petroleum gas averaged Mex$200 billion per es support economic activities representing at least 11 year (around US$18 billion per year). Fuel subsidies percent of Mexico’s GDP. They are an important source result in inefficient use of electricity and fuel and are of jobs and support the livelihoods of millions of people, regressive: the richest 20 percent of Mexicans — who COUNTRY including rural populations. Environmental degradation own most of the cars and electrical equipment — receive PARTNERSHIP STRATEGY FOR and depletion of natural resources in Mexico have an 55 percent of the subsidy while the poorest 20 percent THE UNITED economic cost equivalent to roughly 6.3 percent of GDP. receive only 3.4 percent. Removing energy subsidies MEXICAN Environmental degradation includes air and water pol- alone could increase GDP by 1.5 percent by 2030.14 STATES lution, soil degradation, and solid wastes. In most cases, these costs are primarily borne by vulnerable groups, 28. A comprehensive system for tracking and 22 ••FIGURE 9. Mexico is a large contributor to global CO2 emissions, mostly driven by the energy sector (including transport, energy generation and industry) 500 471.46 Waste, 14.3 percent 400 368.32 Land use change and forestry, 9.8 percent 300 Industrial processes, 9.7 percent 200 183.73 165.55 Agriculture, 6.3 percent 100 71.71 63.44 42.99 Energy Sector, 13.19 59.9 percent 0 Argentina Bolivia Brazil Chile Colombia Mexico Peru Venezuela Source: World Bank calculations based on 2006 data from Instituto Nacional de Ecología. Cuarta Comunicación Nacional. Secretaría de Medio Ambiente y Recursos Naturales. Mexico. 2009 and UNEP Environmental Indicators 2007. monitoring progress on environmental issues needs development challenges demands implementing a series to be developed. Mexico’s leadership and early efforts of parallel policies. Achieving the goals of reducing ex- at developing green-focused GDP accounts are steps treme poverty and promoting shared prosperity calls for in the right direction, but the remaining challenges are policies that simultaneously foster productivity growth, to: (a) strengthen available measures for each sector social inclusiveness and fiscal/environmental sustain- (physical and economic indicators of environmental ability. Some of these policies, such as structural reforms progress); (b) build on green-focused GDP accounts and in education, energy, telecommunications and public valuation of natural assets methodologies, particularly the finance, are already being put forward by the Government Wealth Accounting and Valuation of Ecosystem Services of Mexico (see also Section II). This CPS defines, after (WAVES), to guide macroeconomic and sector policies; a careful selectivity process explained in section III, a and (c) ensure public availability of information on indi- series of tailored engagements which allow for the WBG cators and trends so that constituencies can play a role in to play an effective role in reducing extreme poverty and demanding improvements in environmental management promoting shared prosperity. These areas of engagement, and demanding accountability for governmental efforts to described in more detail in section IV, range from activi- address clearly defined environmental priorities. ties to strengthen social protection and financial inclusion to activities enhancing public sector modernization, 29. Development Challenges and Framework competitive and innovative business environment, envi- for WBG Engagement. Overcoming these complex ronmental protection, and upgrading infrastructure. COUNTRY PARTNERSHIP STRATEGY FOR THE UNITED MEXICAN STATES 23 II. Government of Mexico Vision 30. President Enrique Peña Nieto assumed office in 32. All these reforms are done within the frame- December 2012 for a six-year period. His administration work of the comprehensive six-year National has launched an ambitious reform program buttressed Development Plan (NDP) 2013-18, launched in by a principles agreement, the Pact for Mexico. Signed May 2013. The NDP’s goals, objectives, strategies, and in December 2012 by the Mexican Government and action plans were defined through a broad consultation the three largest national parties, the Pact is a political process conducted in early 2013. The public and open agreement comprising a list of policy proposals ranging consultation process made use of various media and fora from democratic governance to economic growth, security, and included events at the national and state levels with transparency, and rights. focus on special groups such as youth, women, people with disabilities, indigenous peoples, local legislators, 31. In its initial months, the new administration has local mayors, and federal entities. For each goal, the plan presented to Congress a series of reforms in telecom- makes a self-diagnosis of the main challenges that impinge munications, education, financial services, public on achievement and the strategies that the Government finance and energy. All these reforms aim at addressing intends to adopt. Specific targets and indicators provide several of the development challenges described in the some elements for benchmarking the advances of the NDP. previous section. A telecommunications reform, approved in March 2013, introduced a series of measures to increase 33. The overarching vision of the NDP is helping competition and access to information in the telecommuni- Mexico achieve its greatest potential by focusing cation markets. An education reform, approved in August on five national pillars: (a) achieve peace; (b) make 2013, aims at increasing the quality of public education Mexico more inclusive; (c) improve the quality of by improving the selection, training and evaluation of the education system; (d) promote prosperity; and teachers. A financial sector reform, approved in September (e) consolidate Mexico as a responsible interna- 2013, includes a package of several laws aiming at con- tional player. The NDP also adopts three cross-cutting sumer protection, access to financial services, development strategies: democratize productivity to integrate Mexicans banking, and protection to creditors and strengthening the into the formal economy; close and modern government institutional framework of the stock exchange. The Govern- by simplifying procedures and regulations; and a gender ment announced a fiscal reform package including reforms perspective to ensure the rights of women and prevent in the tax and social security systems. The reform contains gender differences from becoming a source of inequality. a series of measures to increase revenues through more effi- cient and progressive taxation, as well as the introduction of 34. Mexico in Peace. Mexico in peace aims at improv- unemployment insurance and a means-tested pension. The ing areas ranging from public security and governance to forthcoming reform in the energy sector, aims at increasing the judicial system, national defense, and human rights. investment in the oil sector. Finally, to prompt economic The NDP identifies criminal activity linked to drug COUNTRY growth, the fiscal reform also includes a provision for fiscal trafficking as a serious challenge to development, albeit PARTNERSHIP STRATEGY FOR deficits in years 2013 and 2014. These counter-cyclical this problem is not generalized at the country level but THE UNITED deficits, scheduled to taper off in subsequent years, together focused in a few regions. A more widespread problem MEXICAN with a large infrastructure program are expected to increase is violence in the family, particularly against women, STATES productive investment and accelerate growth. as well as a generalized public perception of slow and sometimes corrupt judicial and police institutions. The 24 NDP identifies several key interventions for the peace quality education based on initiatives to: (a) strengthen objective. These interventions include creation of better teacher professionalization, modernize infrastructure, and education and employment opportunities for the youth; promote ICT in the teaching process; (b) guarantee an policies to prevent violence against women, boys and inclusive education system; (c) increase access to culture girls; and policies boosting confidence in the judicial and and sports as a means of integral citizen development; police institutions through promotion of the new justice and (d) promote ICT and innovation. system that would deliver more humane, agile, efficient, and accessible justice to all people. 37. Prosperous Mexico. While highlighting the effec- tive macroeconomic management that has distinguished 35. Inclusive Mexico. There are growing public health Mexico in recent years, the NDP also highlights the need problems, such as obesity and hypertension, and there is for improving the performance of sectors such as finance, a growing number of youth who neither study nor work. mining, agriculture, telecommunications, and energy. The The Mexican social security system will face mounting expansion and modernization of these sectors are a neces- financial pressures to tackle these problems. Inclusive sary condition for promoting employment creation and re- Mexico focuses on Government actions to guarantee gional development. Prosperous Mexico seeks to increase social rights and close inequality gaps that divide the prosperity and growth prospects by improving productivity. country. It includes initiatives to: (a) guarantee social Its specific actions seek to: (a) maintain macroeconomic rights to its population; (b) strengthen social participation stability, including managing external risks; (b) promote in community development, and protect the rights and access to finance; (c) promote quality employment; (d) inclusion of people with disabilities; (c) secure the right to promote inclusive green growth that generates income, national social services particularly to vulnerable popula- competition, and employment; (e) promote affordable ac- tions; (d) increase access to social security by promoting a cess to energy and telecommunication services; (f) provide sustainable system of universal coverage; and (e) promote incentives for the development of a competitive internal a sustainable urban development model and promote market; (g) promote and strengthen entrepreneurship and regional development and housing markets. small and medium-size businesses; and (h) promote invest- ments and competitiveness of the mining, infrastructure, 36. Mexico with Quality Education. The NDP transport, agriculture and tourism sectors. recognizes universal coverage in basic education, but a lag in quality hinders advances in secondary education. 38. Mexico as an International Responsible Actor. Moreover, there is need for a closer connection between Mexico can increase its development potential and com- the skills that the education system provides and the petitiveness by promoting an active and effective foreign demands from society. This is even more acute in the policy. The NDP highlights three main areas of interest: case of science and technology and its relation to inno- (a) fostering global governance; (b) promoting foreign COUNTRY vation and business creation. The NDP indicates that trade and investment; and (c) protecting international PARTNERSHIP these challenges require decisive public investments in migrations. The NDP indicates the use of international STRATEGY FOR infrastructure for schools, universities, cultural centers, agreements and institutional development as the main THE UNITED and sports facilities. Quality teachers and instructors instrument for addressing these areas. Mexico played a MEXICAN are an essential complement to these investments. The strong global role chairing the G20 and is pledging re- STATES NDP seeks to build human potential for innovation with sources to the UN system and IDA replenishment. 25 III. WBG Partnership: Selectivity Filtering Process and Country Engagement Model 39. The proposed WBG development solutions en- the CPS was able to improve alignment, operational gagement with Mexico is based on a systematic filtering efficiency, and impact through the use of more focused process to define priority action areas and consolidates interventions and programmatic knowledge approaches, past efforts toward a more strategic and integrated client greater wholesaling resource and budget mobilization, engagement. The engagement model seeks to maximize real-time learning and adaptation, and exit of program the impact of a tailored package of WBG financial, areas where value added, comparative advantage, and knowledge, and convening services for promoting shared impact was no longer aligned with the evolving program prosperity and reducing extreme poverty in a sustainable nor achievable. manner. The CPS builds on lessons learned in organizing development solutions around themes and flexible pack- 42. Working with subnational clients. A memoran- ages of services. It draws on the scope of collaboration dum of understanding (MoU) with the State of Oaxaca among WBG organizations for each of these areas, based proved to be a successful strategy to support the poorest on each organization’s comparative advantage and client states of Mexico. The MoU is serving to deepen dialogue, demand. Finally, the country engagement integrates the monitor implementation, and assess impact within the effort to share globally Mexico’s best practice experiences framework of a multi-year programmatic engagement. in several of these areas, such as conditional cash trans- Hence, the Bank should continue to support poor states in fers and energy efficiency programs. Mexico following the experience with the State of Oaxaca (Annex 7). A. Lessons Learned 43. Continue to support Mexico’s role as a global from Previous CPS knowledge leader. As an innovative middle-income country, Mexico engaged in 33 knowledge exchanges during the past CPS and has become widely recognized 40. The Mexico FY08-13 CPS Completion Report as a key global actor in climate change policy. The WBG (Annex 2) highlights six lessons that are relevant should continue supporting the Government in exchang- for the design of the new strategy. ing knowledge with other countries. There is a strong potential for global knowledge brokering with the Bank as 41. Operational flexibility in packaging services. the global connector. The FY08-13 CPS was designed to be flexible and inno- vative in responding to Mexico’s financial and develop- 44. World Bank, IFC, and MIGA cooperation. ment needs. This flexibility allowed the Bank to respond Bank–IFC cooperation on specific areas around their expeditiously to the Government’s requests when the core competencies should improve effectiveness to COUNTRY global economic downturn hit the country. The imple- achieving common goals in areas such as improving PARTNERSHIP STRATEGY FOR mentation of Mexico’s past country strategies reflect competitiveness and business climate, access to financial THE UNITED the initial transition to a more strategic and integrated markets, and infrastructure development activities. MEXICAN client engagement that seeks to maximize the package MIGA engagement with Mexico is emerging, and Bank STATES of services offered by the WBG in multi-sector ap- and IFC would work closely to support MIGA’s successful proaches. By retaining flexibility in its implementation, in-country transition. 26 45. Lending instruments. During crisis periods, the subnational level (e.g., Oaxaca MoU) and confirmed its use of the Additional Financing instrument led to simpler, request to expand the subnational engagement to the faster, and more cost-effective results for the borrower, States of Guerrero and Chiapas. The Government also compared to other lending instruments. Development highlighted the value of the CPS systematic effort at Policy Loans (DPL) were effective in sustaining progress selectivity for highest impact of WBG activities on end- and protecting long-term reforms in the face of negative ing poverty and promoting shared prosperity in Mexico. external shocks. Multi-sectorwide approach (SWAP-type) Government officials described the WBG involvement operations (such as in infrastructure) may not be practical as central in supporting the National Development Plan. in the Mexico context since they require significant effort Ministries and agencies also noted that the CPS is in to design and supervise and may dilute the Bank’s ability close accord to and complements their own multi-annual to provide just-in-time policy advice and technical as- programs. sistance. Governance and anti-corruption measures may limit the flexibility of quickly preparing and disbursing emergency operations (such as in the support to influenza) C. Approach to Dynamic Selectivity in countries with strong legal frameworks and adequate control environments. 48. A systematic filtering process provides se- lectivity and improves alignment, efficiency, and 46. Knowledge services. Trust fund resources were impact. Three filters were used in selecting areas of indispensable in providing demand-driven technical engagement: (a) WBG comparative advantage; (b) level know-how and in strengthening coordination among key of client demand; and (c) alignment with WBG twin goals stakeholders and financed studies of often overlooked benchmarked by Mexico’s new Multi-dimensional Pover- aspects, especially in environmental and social areas. ty Index. Starting from the Government’s 37 pillar-based Reimbursable Advisory Services (RAS) are powerful activities of the National Development Plan, a systematic instruments when processed quickly by the Bank and filtering process led to identifying four thematic areas for client. Having a framework agreement signed by the WBG intervention (Figure 10). Within these 4 themes, the Government and the Bank would certainly facilitate WBG team focused on 11 specific areas of engagement their processing by avoiding the time-consuming task of (Table 3) and further identified 23 specific problem negotiating sensitive clauses with each client within the areas (Annex 1) on which the WBG is expected to have government separately. Programmatic approaches showed the greatest development impact. Following this logical to be remarkable instruments in focusing and prioritizing chain, the CPS then describes the specific development Bank interventions. Dissemination is required to share solutions proposed (Annex 1). These consist of a tailored the findings of Bank studies at the local level. package of WBG financial, knowledge, and convening services for each of these problem areas, leading to 12 specific CPS expected outcomes. B. Consultations on FY14-19 CPS 49. Targeted interventions on poorest States and 47. The CPS FY14-19 was developed in close consul- frontier markets. Central to this engagement is working tation with the Government, private sector, academia, with both public and private sector clients in longer-term and civil society, comprising over 80 interlocutors. The meetings took place in September 2013 in Mexico City with participants representing stakeholders from several ••FIGURE 10. World Bank Thematic Focus Areas government ministries and agencies at various levels, trade unions, political parties, entrepreneurs, non-gov- Strengthening Public Increasing Socia ernmental organizations, and chambers of commerce Prosperity Finances and at both the national and state levels. Consultations for Government Efficiency the CPS were carried out while the new authorities were developing specific sector implementation plans Eradicating and strategies that complement the NDP 2013-18. This Poverty allowed the WBG to align its interventions with those of the authorities, ensuring that the development solutions and Growth Equity proposed would have the greatest impact. Moreover, Promoting the CPS consultation process was driven by the need to Shared work as One World Bank Group bringing together the Prosperity COUNTRY IFC, IBRD and MIGA teams to harness expertise across PARTNERSHIP the institution, and leverage public and private efforts STRATEGY FOR when communicating with a wide range of groups. The Unleashing Promoting Green and THE UNITED consultations suggest that most stakeholders value the Productivity Inclusive Growth MEXICAN WBG support. The Federal Government acknowledged STATES the Bank’s partnership and flexibility in focusing at the 27 and multi-sector approaches at the federal level and with in integrating social protection systems; in the poorest states (Oaxaca, Chiapas, and Guerrero) along managing fiscal challenges; and in disaster risk the lines of the multi-sector WBG experience with the management and urbanization). This approach on-going State of Oaxaca program (Annex 7). Specific would increase development effectiveness and requests from other states will be assessed based on their reduce transaction cost. impact on the key development challenges identified for the country, and significant parts of the knowledge • New engagement is selective. A limited number activities provided to these states are likely to be financed of new financial services (loans, GEF, CTF) are though Reimbursable Advisory Services. IFC has a pri- currently foreseen for this CPS, concentrated ority focus on frontier markers where there is significant in the green and inclusive growth, and the poverty and perceived riskiness deters the private sector social prosperity themes (e.g., Oaxaca water, from investing to support inclusive growth. community education, and second generation Oportunidades). Only seven selective, high-im- 50. The selectivity approach helped in refocusing pact Programmatic Approaches in support of the country strategy and in identifying areas of CPS themes are currently in the pipeline. This engagement where the WB will be exiting as com- is further supported by an increasing demand pared to the previous CPS: in Reimbursable Advisory Services, further strengthening the cost-benefit ratio of the •  Areas where the Bank is exiting, compared to knowledge portfolio. the previous CPS, related to weak client de- mand and unsuccessful engagements in trade 51. Progress in achieving the goals of the strategy competitiveness, customs, judicial, and influ- will be assessed with two progress reports and enza support programs, leading to a reduced one completion report at the end of the CPS number of themes, outcomes and activities. period. The results framework presented in Annex 1A The number of themes compressed from 5 to 4 sets out specific outcome indicators with baselines and and the number of outcomes declined from 28 targets covering the period of the CPS for each of the to 12 compared to the previous CPS. identified outcomes. A logical chain has been established from country-level goals, diagnostic of development • Increased selectivity of ongoing activities. challenges, WBG comparative advantage, and selective More than half of the financial and knowledge engagement relative to the WBG goals; and with clearly services currently under implementation will defined outcomes, indicators, and targets. Constant client close within two years (17 of the 25 ongoing dialogue, two Progress Reports and an annual Country projects and 12 of the ongoing 29 knowledge Portfolio Performance Reviews (CPPR) covering the full services will close in FY14 or FY15.). This package of services will allow for flexible adjustments of CPS shifts the full knowledge and convening the strategy and results framework. Mexico has one of program to multi-year/multi-sector Pro- the best national monitoring, evaluation, and statistical grammatic Approaches with one common systems among WBG client countries and is a knowledge development objective aligned to CPS themes leader in this area. Data availability and collection does (e.g., in innovation strategies for poor states; not pose a risk to strategy monitoring. COUNTRY PARTNERSHIP STRATEGY FOR THE UNITED MEXICAN STATES 28 ••TABLE 3. Mexico CPS Selectivity Assessment Mexico National Development First Filter Second Filter Third Filter Plan 2013-2018 (May 2013) WBG Comparative PASS Advantage in Mexico Client Demand Alignment to WBG Goals WBG Areas of Engagement NO PASS MIGA* IFC IBRD MIGA* IFC IBRD Initial impact on Multidimensional Index 1. Democratic Governance** No No No 2. Articulating Federalism** No No No 3. National Security No No No 4. Defense No No No 5. Citizen Security** No No Some SEGOB(Weak) 6. Judicial System** No No Some No Demand Mexico in Peace 7. Human Rights No No No 8. Safeguard Against Disaster No No Strong SHCP Extreme Poor 9. Accountability & Anticorruption** No No Strong SFP Both. 10. Inequality & Social Protection** No No Strong SEDESOL Extreme Poor Promoting an integral social 11. Access to Health Services** Some Strong Strong Priv.Hosp Priv.Hospitals SecSalud(Weak) Extreme Poor protection system Social 12. Insurance and Social Security** No Strong Strong Insurance Co. SHCP Extreme Poor Promoting labor markets for Increasing Prosperity 13. Access to Housing** Some Strong Strong Developer Housing(Weak) SHCP Extreme Poor inclusive growth 14. Basic Social Rural Infrastructure No No Strong State Gov’t Extreme Poor Implementing an integrated sovereign Inclusive Mexico 15. Territorial Development No No No risk management framework Enhancing service delivery 16. Quality Education** Some Strong Strong Priv.Univ. Priv.Univers. SEP Extreme Poor 17. Inclusion & Equity in Education Some Strong Strong Priv.Univ. Priv.Univers SEP Managing medium-term Strengthening Gov’t Finances Extreme Poor fiscal challenges at national 18. Science, Tech. and Innovation** No Strong Some ICT Sector SE Shared Prosperity Quality and sub-national levels Education 19. Access to Culture & Sports No No No Upgrading infrastructure 20. Macroeconomic Stabilization** No No Strong SHCP Shared Prosperity Fostering sound financial and 21. Access to Finance** Strong Strong Strong Fin/Micr Fin/MicroFin Banxico Shared Prosperity private sector development 22. Employment** Strong Strong Strong Priv. Sec. Private Sector STPS Shared Prosperity Toward a more competitive 23. Sustainable Development** Strong Strong Strong Manuf Manuf.Ag.Serv SCT+SENER Extreme Poor business environment 24. Access to Telecom Service** Strong Strong Strong Telecom Tier 2 Telecom SCT Extreme Poor Fostering innovation for productivity Unleashing Productivity 25. Energy and Renewables** Strong Strong Strong Energy dev Energy devlps SENER Extreme Poor and competitiveness 26. Competition and Deregulation** Some Strong Strong Priv. Sec. Private Sector SE Shared Prosperity Reducing the footprint of growth 27. Economic Promotion/SMEs** Strong Strong Strong Priv. Sec. Private Sector SE Shared Prosperity 28. Transport Infrast. & Logistics** Strong Strong Strong Transp. Transp. devlps SCT Extreme Poor Using natural resources Prosperous Mexico Promoting in an optimal way Green Growth 29. Mining Some Strong Some Mining Co. Weak Demand No Demand 30. Agriculture & AgFood Sector** Strong Strong Strong Agribus. Agribus.Forest SAG (Weak) Shared Prosperity 31. Tourism Some Some Some Tour Oper No Demand State Gov’t Shared Prosperity 32. Regional Development** Some Some Some Priv. Sec. Private Sector State Gov’t Extreme Poor Cross-Cutting Themes: (i) support to poorer States (Oaxaca, Chiapas, Guerrero), (ii) gender; 33. Free trade Agreements** No No No and (iii) Mexico as global knowledge provider. 34. Trade Promotion** Strong No No Priv. Sec. * MIGA’s comparative advantage and client demand is 35. Regional Integration Some Strong No Priv. Sec. Private Sector Shared Prosperity based on its global experience as it is an emerging player in Mexico. Int’l Actor 36. Migration** No No Some SEGOB (Weak) ** Corresponding areas in strategies proposed 37. Diplomatic Services No No No by the Private Sector. COUNTRY PARTNERSHIP STRATEGY FOR 29 THE UNITED MEXICAN STATES IV. WBG Partnership Strategy: Areas of Engagement 52. This CPS FY14-19 shifts to a country engagement market development are sound ways to broaden access model based on a development solutions approach by and deepen the financial system. However, experience in delivering a customized package of WBG financial, several countries has shown that accelerated (or forced) knowledge and convening activities. This engagement expansion of credit can harm rather than benefit custom- model also packages all knowledge and convening ers. If financial institutions do not follow sound practices, activities into multi-year programmatic engagements. they can fail, harming borrowers and depositors alike and This aggregation of tasks with diverse sources of creating social unrest, with substantial fiscal cost. An funding, including trust funds and RAS, emphasizes oversight system (both micro- and macro-prudential) that the synergies and linkages between the various WBG encourages prudent risk-taking and facilitates prompt activities related to the solution of a specific develop- resolution of failed institutions ensures that strategies ment problem. for financial deepening do not compromise financial stability. Theme 1. Unleashing Productivity 55. The WBG will continue supporting reforms to foster sound financial sector development, 53. To increase productivity and ensure that such including the recently draft financial reform gains are widespread, focus should be placed on poli- initiative. The World Bank will provide support for the cies and programs that primarily benefit SMEs, foster implementation of the financial reform initiative through new enterprise creation and innovation, and upgrade a programmatic knowledge engagement. The package infrastructure. To these ends it is essential to: (a) envisions the reform of 34 laws and numerous secondary foster sound financial sector development to facilitate regulations in the areas of capital markets, public banks, access to finance to businesses and financial inclusion financial infrastructure, and financial oversight. The for individuals; (b) generate a competitive business Bank will also work with telecommunications industry environment to propitiate new enterprise creation in to evaluate a pilot to bring the use of mobile phone op- all sectors of the economy, specially network sectors erated electronic wallets to isolated rural communities, shielded from competition; (c) foster innovation for which currently lack wireless phone access. Scale-up productivity and competitiveness; and (d) upgrade of the pilot is contingent on the evaluation results. IFC infrastructure. plans to increase its investment portfolio for financial institutions focused on MSME lending, niche banks and further penetrating non-bank financial markets (pension Fostering sound financial sector development funds, insurance, capital markets). IFC is also seeking COUNTRY to support financial infrastructure through alternative PARTNERSHIP 54. Mexico needs to broaden and deepen its fi- channels such as mobile banking, and will continue to STRATEGY FOR nancial system without compromising the financial assist in the development of the capital markets enabling THE UNITED stability gains of the last decade. Using the finan- companies to access the local debt market. MIGA can MEXICAN cial payments system to promote financial inclusion, provide guarantees to increase cross-border lending to STATES improvements in financial infrastructure and capital local clients, including MSMEs. 31 Toward a more competitive potential firms; and (b) supporting states with lower business environment GDP per capita to develop a regional innovation strategy and regional capacities to access existing innovation 56. Strengthening competition and streamlining funds and programs. From a sectoral perspective, the key regulations for firms are key to increasing Mex- focus would be on improving innovation and technology ico’s competitiveness and unleashing productivity. extension in the manufacturing and agricultural sector. Firm-level productivity and business entry for formal IFC will continue to support companies that innovate enterprises in Mexico are low, relative to international through technology, products, or processes, giving peers. Low productivity is associated to firm size, with priority to investments related to the production of val- larger firms having much higher productivity levels than ue-added products in underdeveloped sectors in which small ones. The large proportion of micro, small, and Mexico has a competitive advantage and in companies medium-size enterprises (about 98 percent of all firms), with strong impact in the development of SMEs through together with the fact that they are not growing in size, the supply chain. Agribusiness is also a priority for IFC is a drag on Mexico’s productivity. Factors that hinder given its linkages and strong impact on SMEs in rural productivity include burdensome business regulations, areas and because of its potential effect on the global concentrated markets with dominant firms in strategic food security problem. IFC also expects to increase its sectors, and lack of effective pro-competition regulations. financing for Mexican companies investing overseas to Such restrictions limit both firm entry and the growth of achieve knowledge transfer, regional development, and existing firms, increase the price of inputs, and reduce the growth. Finally, IFC, together with INADEM, is evalu- overall economy’s competitiveness. Lack of competition ating a pilot to set up a management company to invest reinforces existing inequities by affecting low-income and provide technical support to innovative early stage households disproportionally. SMEs. MIGA can provide guarantees to foreign investors in local enterprises, which can act as a catalyst for local 57. To contribute to unleashing productivity, the entrepreneurship. WBG will increasingly focus on supporting policies that favor SME growth through regulatory simplifi- cation and removal of regulatory competition bar- Upgrading infrastructure riers. In the next years, efforts will focus on the provision of a comprehensive package of services to improve regu- 60. Raising the country’s productivity would re- latory frameworks at the national and subnational level quire a comprehensive strategy to improve efficien- with a special emphasis on eliminating anti-competitive cy of key infrastructure services. This includes the regulations. rail and port sectors, public management arrangements and the role of Public-Private Partnerships (PPPs), and rules and procedures governing the entire breadth of the Fostering innovation for productivity supply chain. Sector and institutional reforms, and sub- and competitiveness stantial infrastructure investment should also be included in this program. To contribute to the competitiveness of 58. Several factors explain Mexico’s innovation the country, the IFC aims to continue supporting sectors shortfall. Mexico’s less than adequate competition, that are opening further to the private sector, such as labor market rigidities, serious gaps in human resources, telecommunications where IFC can bring its global expe- very limited financing for startups, lack of long-term rience. In the case of the energy initiative currently under financing to large companies, and weak links between discussion, if the conditions are established, IFC could be the productive sector and knowledge institutions have all a financing option to support long-term investments and contributed to the innovation shortfall. Federal initiatives local companies in the sector. to promote innovation at the subnational level have not yielded all the desired results due to lack of capacity. 61. If current IBRD capital limitations are eased during this CPS implementation period, the WBG 59. WBG contribution to this topic concentrates could develop a substantial pipeline of financial in improving the coordination of policies aiming services and innovative instruments with partic- at taking innovations to firms in the productive ular focus on infrastructure financing. This would sector and supporting private investments that be critical in the context of the financing alternatives boost innovation and productivity. IBRD has been for President Peña Nieto’s announced spending of supporting the Consejo Nacional de Ciencia y Tecnología US$316 billion for a 6-year infrastructure program. COUNTRY (CONACYT) for a doctoral fellowship program and IBRD, IFC, and MIGA will work jointly to maximize PARTNERSHIP STRATEGY FOR programs to encourage public–private collaborative impact. MIGA can also support the infrastructure sec- THE UNITED research. Going forward, the Bank’s focus will shift to: tor by attracting foreign participants in PPP processes MEXICAN (a) supporting the newly created SME agency (INADEM) and by facilitating financing of public projects through STATES to improve the effectiveness of programs to foster SME its Non-Honoring of Sovereign Financial Obligations productivity and growth, with a focus on high-growth (NHSFO) product. 32 Theme 2. Increasing the Quality Schools Project (PEC). These were accompa- Social Prosperity nied by a richly laden program, including activities such as evaluating the impact of Mexico’s teacher training program on student outcomes; an impact evaluation of an 62. To improve social prosperity and alleviate poverty, ECD program targeted at poor children living in marginal- Mexico needs to promote labor markets and an integrated ized areas; an evaluation of the school-based management social protection system. The objective should be to models; and an analysis of the gap between the supply increase wages through productivity growth and move and demand for skills, both nationally and in the State of toward a more efficient, effective, and integrated social Oaxaca. protection system that will protect people from unexpect- ed welfare losses, including those related to violence. 66. The Bank will build on this program through new activities, including: ( a) reforming the labor courts according to the recently approved labor law to lower Promoting labor markets for inclusive growth labor costs; (b) improving the job relevance of education by strengthening and expanding the school-based man- 63. A crucial ingredient to alleviating poverty agement model, improving the reach of ECD services, and promoting shared prosperity is higher wages further reforming the secondary education system, and through greater labor force productivity. Although implementing strategies to reduce upper secondary wages grew slowly over the past 20 years, the economic dropout and youth inactivity; (c) supporting labor market crisis of 2009 reversed the gains; since then, Mexico has policies that improve the skills level, formality, and alloc- had difficulty regaining the wage growth. The related slow ative efficiency of the labor force, including the National growth in labor income, the largest source of income for Employment System (Sistema Nacional de Empleo); and families, has not translated into poverty reduction and has (d) promoting appropriate options for skills acquisition limited shared prosperity. There is also a gender aspect to and school-to-work transition for the poorest youth under this, as fewer women than men are economically active the Oportunidades program. (44 and 81 percent, respectively), and there is persistent occupational segregation and gender wage gaps. Women, 67. In parallel, IFC expects to continue supporting however, work longer hours than men. skills development and employability by: (  a) investing in private education providers that have a focus on viable 64. Measures to increase labor productivity may and scalable models for low- and middle-income students; work through three channels: regulations, skills, (b) supporting innovation by investing in new service de- and employment services. The first channel reduces livery models to increase affordability and quality; and (c) labor market rigidities and increases the benefits of leveraging WBG convening power to share best practice formality and incentives to employees who can invest and foster partnerships. IFC’s education strategy in Mex- in their own human capital and skills development that ico aims to expand equitable access to quality education allows them to move into more productive jobs with and affordable costs leading to employment opportunities. low risk. The second channel raises the labor-market MIGA can contribute to the effort by supporting projects relevance and level of skills through a national skills related to education focusing on skills development for strategy. This strategy maps labor-market skills acqui- employment opportunities reaching underserved sectors, sition throughout the life-cycle; continued reorientation and projects in other sectors that will result in job creation of upper-secondary school toward the labor market; and transfer of knowledge and skills. and portability of skills across the education, training, and labor-market systems. In spite of continuous gains in education attainment rates, 43 percent of Mexican Promoting an integrated social employers cited difficulties filling job vacancies, as protection system compared to a global average of 31 percent. The third channel improves allocative efficiency of the labor 68. Although Mexico has been at the forefront in force by facilitating job search and matching through social protection policy, new reforms are needed to integrated employment services and strengthening com- build on the gains achieved and reduce inequities petency-based certification. and inefficiencies to begin building a more inclu- sive, effective, and integrated social protection sys- 65. A multi-year program of lending, knowledge, tem that provides protection from income shocks and convening services has supported the labor and helps smooth consumption over the life-cycle. COUNTRY productivity agenda. Lending activities included the A potential hindrance to greater social progress PARTNERSHIP Compensatory Education Project, which supports the is the difficult citizen security situation, which STRATEGY FOR Consejo Nacional de Fomento Educativo (CONAFE) to ex- affects certain states. The development of a national THE UNITED pand quality early childhood development (ECD) services and citizen security policy under the National Program MEXICAN to the most marginalized municipalities in Mexico and the to Prevent Crime is a first step in providing a framework STATES second phase of an Adaptable Program Loan (APL)15 for for joint federal and subnational action. This policy 33 should also include skills building and support to civil in terms of labor market performance and individual servants, public and private partners, and stakeholders in wellbeing, have prompted initial contacts with Mexican evidence-based crime and violence prevention methods; authorities that may lead to technical support in this area information systems to track criminal activity to identify in future years. hot-spots and to measure the impact of interventions; and investment in infrastructure and social services to 71. To promote an inclusive, effective, and inte- establish a state presence in hot-spot communities. grated social protection system, IFC investments and advisory services will focus on supporting 69. The WB is supporting efforts at designing and the private sector players engaged with the public implementing second generation reforms in Mex- sector in the delivery of social services. This will ico’s conditional cash transfer programs. Mexi- be done by supporting players who are currently or are co’s two flagship social assistance programs are planning to work with the public sector through PPPs for a good base toward a more inclusive, effective, delivery of services; and by providing advisory work to efficient, and integrated social protection system. local, state, or Federal Governments in the design and ex- While Oportunidades and Seguro Popular (Régimen ecution of PPPs to ensure a balance between the risks and Estatal de Protección Social en Salud – REPSS) are benefits assigned to the private sector, in order for these recognized globally for their poverty alleviation and partnerships to be financially feasible and bankable. human capital development impacts, they represent Also in this sector, MIGA can help support by attracting programs and policies and not in themselves a system. foreign participants in PPP processes and by facilitating To begin moving toward such a system, the WBG will financing of public projects through its Non-Honoring provide support to: of Sovereign Financial Obligation (NHSFO) coverage to potential foreign investors. a.  Develop a unified registry of beneficiaries, as a basis for a social protection system that provides information on how families are Theme 3. Strengthening accessing any social security or assistance pro- Public Finances and grams. This allows for proactive management to reduce duplication, improve efficiency of Government Efficiency program administration (such as unifying cash payments from various programs into a single 72. To achieve faster growth, reduce extreme poverty monthly payment), and link families to other and promote shared prosperity, Mexico needs to improve eligible programs. public service delivery. Mexico’s public service deliv- ery is hindered by low tax collection and expenditure b.  Improve functioning of the health system (par- inefficiencies at all levels of government: federal, state, ticularly primary health care) by strengthening and municipal. Strengthening public finances in Mexico the incentive and accountability framework requires dealing with several challenges. On the income between the Federal Government; the state side, Mexico needs a comprehensive fiscal reform to alle- through its fund holders, particularly Seguro viate the looming medium-term pressures on its budget. Popular; and providers. This fiscal reform refers to both national and subnational public finance. On the expenditure side, Mexico needs c.  Enhance inter-institutional links between the to improve public sector performance, and expenditure Oportunidades program and education, labor quality and equity. The World Bank thematic engagement market, and ECD programs. aims at: (a) managing medium-term fiscal challenges at national and subnational levels; (b) enhancing public d.  Support a transition of the health system from service delivery; and (c) implementing an integrated one that only responds to acute illness to one sovereign risk management framework. that also ensures prevention and control of chronic conditions (i.e., non-communicable diseases, particularly those related to obesity Managing medium-term fiscal challenges such as diabetes and heart disease). at national and subnational levels 70. Migration is a potential new area of engage- 73. The Bank has been supporting Mexico’s efforts ment. Net migration from Mexico to the United States, to address its fiscal challenges and will continue to COUNTRY which formerly absorbed some excess labor, has declined provide technical support for enhancing the federal PARTNERSHIP STRATEGY FOR rapidly between 2005 and 2010, in part as a result of the tax revenue system. A team of international and Bank THE UNITED impact of the crisis on the U.S. economy. The presence experts in tax systems is currently working with the Minis- MEXICAN and transit of Central American migrants in southern try of Finance (SHCP) through a three-year Programmatic STATES Mexico is a long-standing concern for Mexican author- Knowledge Service to study different policy options avail- ities. The implications of these migratory flows, both able to address fiscal pressures in an efficient, equitable, 34 and sustainable way. Moreover, the Bank will provide Distrito Federal and management capacities in the State support to the Mexican Tax Administration Office (SAT) of Oaxaca initially done in 2011 is an ongoing reimburs- through a program for evaluating tax administration and able advisory service to these entities. improving tax compliance through better controls of tax obligations and empirical studies regarding lawsuits. The Bank is also providing support through various trust funds Enhancing service delivery through to strengthen the institutional capacity of the Ministry of better public sector management Public Administration (Secretaría de la Función Pública) to implement new internal control models and modern IT 77. There has been good progress on three main systems. fronts of the public sector modernization agenda in Mexico: ( a) harmonizing accounting at the federal and 74. Despite better targeting of social spending, subnational levels; (b) introducing performance-informed some programs in Mexico disproportionally ben- budgeting, a comprehensive Government Accounting efit the higher-income population deciles. Some System (SCG) and implementation of a single treasury programs are very progressive as the per capita public account; and (c) building on the success of procurement transfer falls with higher-income levels; others are less so reform in centralized government and sector delivery as the per capita public transfer rises with higher-income units to strengthen core public sector management func- levels. Examples of the former are conditional cash tions. However, further actions are needed to strengthen transfer programs (Oportunidades), temporary employ- those core functions, particularly at the subnational level. ment program (PET), and non-contributory pensions for As experience from other countries shows, setting up a the elderly. Examples of the latter are energy subsidies, performance-informed system requires a culture change, VAT exemptions and zero rating, which are, in effect, with a new management style based on performance in- non-targeted consumption subsidies. In the end, Mexico’s centives; management delegation; and a focus on inputs, tax-benefit system does not improve income equality as outputs, and outcomes. Currently World Bank support much as in other OECD countries. Building on past diag- related to public sector efficiency includes financial nosis, the Bank will continue to provide technical support services results-based management and budgeting. on monitoring and evaluating the design, impact, and dis- tributive incidence of fiscal policies and social programs 78. Knowledge products are enhancing public as well as providing recommendations for enhancing its sector efficiency and effectiveness. Grants supporting progressivity. The Bank will also support the development an IT system at the supreme audit institution will function of a methodology and quantitative estimates for a social as a risk management tool and enhance professional discount rate, which will help the SHCP to better select competencies of its staff as well as strengthen the audit investments and evaluate the return of social programs. function with new tools and techniques. Technical support for strengthening management capacities is currently pro- 75. The challenge of subnational public finance. vided to the Federal Government, the National Congress, Recent experience with the rapid increase in subnational and the States of Oaxaca and Puebla. The World Bank is borrowing and the lack of fiscal sustainability in some also providing technical support with the implementation states has created a political momentum to move from a of integrated financial management information systems market discipline to a fiscal rules-based approach. Legis- (SIDAFF) to include financial accounting at different lative proposals, currently under discussion in Congress, levels. Reimbursable services are planned to fund the include a balanced budget requirement at the subnational next generation of procurement reforms, particularly in level, the oversight and possibility of intervention by the modernizing the government’s Compranet system and in Federal Government in subnational public finances, as raising standards of administrative procedures. Finally, well as the ability of the Federal Government to extend a as a means to respond to growing societal concerns about guarantee for specific subnational borrowings. the efficiency and transparency of public expenditures, the Bank will support a public expenditure review in 76. In addition to the ongoing engagement with coordination with federal and subnational agencies. the Federal Government around the challenges of subnational public finance, the World Bank also provides technical support to subnational entities Implementing an integrated risk directly. As part of the growing engagement around this management strategy topic, the Bank also plans to develop a programmatic knowledge program to support SHCP in setting up a 79. Exposure to risk at the sovereign level, which COUNTRY unit that will be responsible for the implementation and depends on both the external environment and PARTNERSHIP supervision required under the new subnational fiscal internal conditions, is more efficiently managed STRATEGY FOR discipline and borrowing framework. The Bank is also within an integrated framework. The impact of ex- THE UNITED providing support to strengthen the institutional capac- ternal shocks can be amplified or reduced depending on MEXICAN ity of public sector management in the States of Puebla the sovereign’s internal degree of exposure to the shocks. STATES and Oaxaca. Technical analysis of tax administration in This in turn depends on the authorities’ proactive drive 35 to identify and quantify the various types of risk, and to Theme 4. Promoting Green analyze them in an integrated and centralized manner so and Inclusive Growth as to more efficiently manage this risk. 80. The Government of Mexico has increasingly 83. Mexico’s significant natural resource capital, addressed a number of direct and contingent risks. the high cost of environmental degradation, and the An important goal has been to meet the balanced budget increasing risks posed by climate change highlight target and avoid highly disruptive and costly adjustments the importance of a green-growth agenda address- during the annual budget implementation. Consequently, ing critical policy concerns:the footprint of growth the Government has sought to diminish the vulnerability (externalities), including urban planning, solid waste of public finances to a number of direct shocks and risks management, energy efficiency; and managing natural related to fluctuations in GDP growth; oil price volatility, assets under pressure–focusing on forest, biodiversity and as well as interest, exchange rate; and refinancing volatili- water management, and renewable energy. ty and its impact on the debt and other financial portfolios. The Government has also addressed a number of potential or contingent sources of risk such as natural disasters, Reducing the footprint of growth food price volatility and agricultural risk, climate change, and subnational governments in fiscal distress. In spite of 84. Fast urban development has been inefficient continued strong progress in all its policy areas, a Fiscal and needs to be greener. The fast urbanization rate Risk Management DPL of US$300.8 million in support of (estimated at 77 percent) is car-oriented, inefficient, and Mexico’s fiscal risk management policies was withdrawn not conducive to generating economies of scale in produc- on September 20, 2013 in the absence of its signature tion, movements of labor and capital, and resource con- within eighteen months from the Board approval. A com- sumption. To address these issues, Mexico needs to focus pletion note is under preparation. on making urban development greener, more efficient and resilient, and socially inclusive. This can be initiated by: 81. The World Bank has been supporting the (a) reviewing housing policies to develop compact spaces Government in dealing with environmental and that are both efficient and livable; (b) providing urban economic risks through the delivery of an on-going layouts needed to promote public and non-motorized comprehensive package of services for disaster transport; (c) supporting the development of mass transit risk management and by using IBRD financial risk in appropriate corridors and creating a mobility strategy; management tools. Through the World Bank MultiCat (d) using land-based financing instruments to provide (multiple catastrophe) Program and jointly with private infrastructure in new low-income housing developments; sector partners, the Government has successively issued and (e) integrating risk reduction policies in urban devel- two parametric catastrophe bonds for US$290 million opment instruments. and US$315 million in 2009 and 2012, respectively. Forthcoming activities to address contingent fiscal risks 85. Costs of land and water degradation due to more generally will include continued use of IBRD solid and liquid wastes have been increasing each risk management tools on loan portfolio and non-IBRD year, impacting human health, the environment, liabilities (e.g., interest rate conversions and stand-alone and the economy. The following areas require partic- interest rate swaps). ular attention: (a) developing an integrated urban solid waste management strategy; (b) strengthening manage- 82. The World Bank is also providing several ment capacity at municipal, state, and federal levels; (c) knowledge services on risk management. A multi- reviewing sector policies (including tariff system) that year programmatic engagement in disaster risk manage- would allow cost recovery; (d) developing waste reduction ment supports the Government of Mexico to build an and recycling awareness campaigns; (e) developing sound effective disaster risk management strategy that balances social inclusion plans for waste pickers; (f) addressing risk identification; investments in risk reduction mea- problems posed by hundreds of contaminated sites and sures; efficient ex post reconstruction activities; and use of planning for their closure and redevelopment; and (g) risk-financing tools, including risk transfer mechanisms. exploring the potential of waste to energy schemes. In addition, knowledge services are contributing to the design of a comprehensive agricultural risk management 86. Enhancing energy efficiency is also a key el- strategy by both evaluating Mexico’s current system and ement in promoting low carbon development for providing sound policy and program alternatives aimed at the country. Necessary actions include: (a) promoting COUNTRY ameliorating processes such as risk identification; institu- the adoption of energy efficiency labels and standards in PARTNERSHIP STRATEGY FOR tional risk management analysis; risk quantification and housing, transport, and small businesses; (b) encouraging THE UNITED pricing; and utilization of innovative market-based risk a greater private sector participation in the development MEXICAN financing tools, including risk transfer mechanisms. of industry-wide efforts to increase energy efficiency, as STATES well as in the creation of commercial options to finance energy-efficiency initiatives; (c) strengthening regulation 36 in the energy sector for a commercially oriented and more urban mobility systems, refrigerators, and urban services; efficient operation in PEMEX and Federal Electricity (b) the development of in-country capacity to design and Commission (CFE); and (d) phasing out energy subsidies. implement projects capturing carbon dioxide from power generation and industrial installations and subsequent 87. The World Bank has a very robust program to carbon capture and sequestration; (c) the implementation support the reduction of the footprint of growth. In of strategies to reduce gas venting and flaring; and (d) a financing services, an ongoing project is supporting bus political economy assessment of the impact of reducing or rapid transit solutions in cities and states, complemented phasing out energy subsidies. by the Government’s Programa de Transporte Masivo (PROTRAM), which provides technical support to the 91. IFC’s contribution to reduce the footprint of same target clients in the design of comprehensive urban growth involves both advisory services and direct transport plans. Funding from the Clean Technology Fund financing. IFC covers mainly the following areas: (a) (CTF) is supporting the acquisition of clean technology solid waste management activities and waste to energy buses, enhancing the scope of the project not only to im- projects; (b) a programmatic green buildings initiative prove mobility but also to reduce GHG emissions. A GEF and support to development of sustainable construction grant is supporting several Mexican cities in their efforts projects that follow international codes for energy and for clean air, and a carbon finance operation is supporting water efficiency; (c) energy efficiency-related projects and improvements to the Corredor Insurgentes Bus Rapid companies; and (d) urban mobility. IFC is engaged in the Transit (BRT) system in Mexico City. Another GEF grant state of Puebla providing transaction advisory support to is providing state-of-the-art knowledge to Mexico City develop bus rapid transport routes in the form of PPPs. on initiatives to open data in transport and supply-side schemes to reduce trips in heavily congested areas of the city. Reimbursable Advisory Service to support Mexico’s Using natural resources in an optimal way national urban transport strategy was completed recently, and further advisory work is possible. 92. Despite their strategic environmental and social role, forests are subject to high degradation 88. The Bank is also building on a long partner- in Mexico. Policy options to reverse this negative trend ship with the Government in the housing sector to include: (a) shifting funds from reforestation to commu- support its current efforts to increase densities in nity forestry and paying for environmental services; (b) urban areas. In particular, the Bank will be launching strengthening advisory and monitoring systems; (c) foster- in FY14 a programmatic approach that will include an ing sustainable and competitive community enterprises; urbanization review, a diagnostic of the main urban chal- (d) developing approaches for forests with high biodiver- lenges in the country, and recommendations to inform a sity values but relatively low commercial value; (e) pro- national urban policy. The programmatic approach will moting cross-sector coordination and public participation also include a Reimbursable Advisory Service in housing in policymaking; and (f) developing a landscape approach policy to improve the efficiency of subsidy programs, to to analyze forestry in the larger context of integrated rural strengthen rental markets and construction finance, and development. to increase the dynamism of the secondary market. 93. Per capita water availability has decreased by 89. The Bank has launched a diagnostic of key an alarming factor of four in the last 50 years. This issues and players in solid waste management with situation is compounded by an inefficient use of water re- the longer-term objective of supporting a national sources in agriculture as well as in urban services and ex- program. This program could help cities in the formu- acerbated by the impact of climate change. Service quality lation of coherent and comprehensive strategies as well is below OECD standards and cost recovery is extremely as specific projects and financing mechanisms to manage low. Critical actions include: (a) implementing an effec- solid waste and contaminated sites. The goal is to cover tive water financing system with incentives for an optimal the entire cycle from reduction, recycling, generation, use of water resources; (b) consolidating the information collection, disposal, and possible transformation, using base for climate resilience, water management, and water regional resources optimally. sanitation and drainage services; (c) strengthening the enforcement of water rights; (d) improving the efficiency 90. The World Bank foresees a rich program to sup- of water usage in the agriculture sector; (e) bringing effi- port GHG emissions reduction. The ongoing Efficient ciency and quality of urban services up to regional OECD Lighting and Appliances Project successfully supports standards; and (f) supporting local governments in the COUNTRY government programs to reduce emissions by increasing provision of works and sanitation services. The priorities PARTNERSHIP the use of energy-efficient technologies at the residential of the government in the water sector will be identified STRATEGY FOR level. The Bank also supports some states in the prepara- in its National Water Plan (Plan Hídrico Nacional) being THE UNITED tion of action plans to improve efficiency in city buildings. drafted. In preliminary discussions with the current MEXICAN Four knowledge services are planned: (a) the preparation administration, the National Water Agency, CONAGUA, STATES of National Appropriate Mitigation Actions on integrated has indicated several priority areas in which is interested 37 in partnering with the Bank, namely: (i) integrated urban comprehensive analysis of the water financing system, water management; (ii) urban flood management; (iii) wa- an important input to ensure the sustainability of water ter supply and sanitation utility reform beyond efficiency provision in years to come. The Bank may provide a RAS, improvements; and (iv) resilience of infrastructure to requested by the national water agency to prepare water extreme events and climate variability. basin diagnostic studies in order to develop a comprehen- sive water management system in the Mexico Valley. 94. The possibility of Mexico turning into a net oil importer poses the challenges of radically trans- 96. WBG projects on wind and solar energy, and forming the country’s energy matrix composition. combined solar-thermal cycles have helped the Key options lie in further using renewable energy sources; Government of Mexico break ground on renew- involving the private sector in financing investments in ables and energy diversification. A new GEF grant renewable energy; and exploring the potential to expand will help promote innovation in the development and geothermal, solar, and wind power. The WBG will con- implementation of clean energy technologies through tinue supporting Mexico in these areas through a suite of Mexico’s Sustainable Energy Fund. financial, knowledge, and convening services. The Bank is preparing a knowledge programmatic approach that 97. The World Bank is planning to launch a new will include the topics of environmental legislation, envi- multi-year knowledge and convening programmatic ronment-related public finance, and adaptation to climate engagement in FY14 to address the need to institu- change at state level. The Bank has also discussed the tionalize environmental and social safeguards with possibility of an Ecosystems-DPL to continue supporting the objective of moving toward the use of country government policies in climate change mitigation and systems in the future. adaptation. Ongoing GEF grants are promoting adapta- tion to the consequences of climate impacts in coastal 98. IFC is also contributing to the optimal man- watersheds and wetlands and promoting the conservation agement of natural resources. IFC financed the first of priority biological corridors. A meteorological mod- utility-scale photovoltaic solar project in Latin America ernization project is supporting equipment, modeling, and expects that its risk taking in renewable energy will and forecasting capacity; and the upgrading of several further unlock the potential of Mexico’s renewable power regional centers. A forests and climate change project potential. Through its advisory and investment activities, (REDD+) is supporting rural communities to sustainably IFC expects to strengthen its collaboration with the manage their forests while reducing emissions from defor- Mexican Infrastructure Fund to support municipal water estation and degradation. The Bank is also promoting the operators in improving their operations and efficiency via adoption of emission-reduction technologies in small and PPP schemes. In forestry, the priorities are: (a) contribut- medium-scale agri-business. ing to take pressure off natural forest for wood supply by supporting investment in commercial tree plantations; (b) 95. The World Bank is supporting the improvement increasing the sustainable use of already degraded land; of efficiency in water utilities through financial and and (c) supporting the expansion of certified forests. As knowledge services. In addition to an ongoing project an emerging player, MIGA can contribute to the effort by in water-efficiency improvement, the Bank is preparing supporting foreign investments in carbon mitigating proj- a water and sanitation project in the State of Oaxaca ects, waste management, water treatment and delivery, covering regulatory issues as well as improvement of renewable energy, and other efficiency-related sectors, as the quality, and sustainability of water services in rural well as attracting private participants in PPP processes and urban areas. Technical support at the state level is and financing of government-sponsored projects through an emerging area of interest. The Bank has prepared a NHSFO coverage. COUNTRY PARTNERSHIP STRATEGY FOR THE UNITED MEXICAN STATES 38 V. Portfolio and Lending Program 99. This CPS describes the Bank’s indicative engage- Bank’s ability to further support Mexico’s efforts to reduce ment with Mexico as a partnership to achieve devel- poverty and enhance the incomes of the less well-off will opment results through a tailored package of financial, be limited despite the increased demand for development knowledge, and convening services. IBRD lending has finance. The WBG is engaging with the Mexican authori- remained an important part of this engagement through- ties on possible alternatives to position the Group within out the years. However, Mexico is now approaching the the Government’s new US$316 billion infrastructure pro- single borrower limit (SBL) of US$16.5 billion. Mexico gram and in supporting subnational programs. In parallel, is the largest IBRD borrower with outstanding debt of country management is ensuring the most effective use US$14.78 billion as of September 30, 2013, representing of the combined WBG balance sheets. The Bank is also some 10 percent of IBRD’s total portfolio. After pre-pay- pro-actively pursuing leveraging of IBRD funding with ing some US$5 billion during FY07 to bring down its other development partners. Nevertheless, these efforts exposure to US$4.1 billion, Mexico’s exposure increased will be insufficient to support Mexico’s financing needs rapidly from FY08 with the unleashing of the global without a significant increase in IBRD lending capacity financial crisis and surge in IBRD lending: US$12.5 for Mexico. billion commitments in FY09-11 and decline in the size of repayments of loans following a large prepayment of 101. As of September 30, 2013, the active WBG loans in FY07. portfolio consisted of 12 IBRD projects and 5 full GEF operations for a net commitment of US$4.26 100. IBRD lending capacity will need to be billion. The average age of IBRD projects dropped from increased. As Mexico approaches the SBL limit, the 4 years in FY08 to 3 years in FY12, but increased back to ••TABLE 4. World Bank Portfolio FY08-FY13 Variable FY08 FY09 FY10 FY11 FY12 FY13 FY14* Number of Projects 19 20 23 22 23 18 17 Net Commitments (US$ M) 2,165.8 3,949.0 6,908.4 7,637.6 7,775.5 4,557.8 4,257.0 Number of Problem Projects 3 5 3 3 2 7 7 % Problem Projects 16% 25% 13% 14% 9% 39% 41% % Net Commit at Risk 7.1% 9.5% 8.2% 3.8% 0.6% 8.0% 8.5% % Proactivity 50% 67% 100% 67% 33% 100% 100% COUNTRY PARTNERSHIP % Realism Index 79% 100% 83% 55% 28% 100% 100% STRATEGY FOR Total Undisbursed Balance (US$ M) 1,152.3 2,102.6 3,802.6 3,641.0 3,201.1 1,579.0 1,264.7 THE UNITED Disbursement Ratio (Investment Only) 43% 214% 80% 49% 31% 46% 1% MEXICAN STATES Data includes GEF operations. *Data as of September 30, 2013 39 ••TABLE 5. IFC Portfolio FY08-FY13 Variable FY08 FY09 FY10 FY11 FY12 FY13 Number of projects committed 9 12 11 14 14 14 Commitments (US$ M) 149 84 338 188 369 1,346 Mobilization (US$ M) 207 144 440 Own account + Mob (US$ M) 149 84 545 331 369 1,786 Portfolio (net commitments) 1,001 783 1,076 1,005 1,189 1,495 Number of clients in portfolio 39 38 38 38 46 54 4.1 years in FY13 due to the extension of several energy ••TABLE 6. Indicative FY14-15 IBRD and GEF projects. Disbursement ratio has been steadily Lending Program for Mexico high (Table 4). The Bank is implementing some 40 trust funds, including a large Clean Technology Fund and GEF Project Name (in US$ million) FY14 FY15 program for US$455 million. Oaxaca Water 50 102. Since 2008, IEG has evaluated 22 projects of which Upper Secondary Education DPL III 300 64 percent has been rated “satisfactory” or “moderately satisfactory”. Representing 8.5 percent of commitments, School-Based Management III 300 currently there are 7 projects in problem status (or 41 Community Schools Program (CONAFE) 100 percent of projects), concentrated in renewable energy and transport projects with complex and innovative Oportunidades AF (second generation reforms) 300 procurement. Restructurings/cancellations have taken Total 350 700 place within the last year in five of the problem projects and are in process in the remaining two projects. These portfolio actions have untangled implementation and contracting bottlenecks and should yield disbursements shortly, improving the health of the portfolio. Sector-spe- cific portfolio reviews will also help address systemic implementation issues. 103. The level of IBRD lending within the development solutions thematic engagements discussed in Section IV will depend upon: (a) IBRD exposure management devel- opments and leveraging options; (b) subnational demand for financing; and (c) the conditions of global financial markets. Overall, IBRD capacity to respond to a large increase in financing demand is currently constrained by the SBL. In this context, the indicative firm IBRD lending program for FY14 and FY15 is expected to be US$350 million and US$700 million, respectively (Table 6). Mexican authorities have indicated that if IBRD were to increase its lending capacity, they would be interested in developing a more substantial pipeline, with a particular focus on infrastructure. COUNTRY PARTNERSHIP STRATEGY FOR THE UNITED MEXICAN STATES 40 VI. Risks and Mitigation 104. Four potential risks may impact the results restructurings would help improve the performance of achievement of the CPS: weakened political support, in- problem projects. To tackle implementation issues, pro- ternational economic environment, program performance, active portfolio management, including strong follow and crime and violence. up on recent restructurings and sector-specific portfolio performance review (together with related knowledge 105. Political support for reforms may weaken. programs) should yield disbursements and improve the The political economy of addressing key structural rigid- health of the portfolio. The filtering process presented ities for improved labor productivity and greater market in this CPS will also serve to maintain program focus to competition and innovation, particularly in the energy the WBG goals while maintaining flexibility to respond to sector, is still undetermined and bound to be difficult. emerging client needs, including at the subnational level. However, the strategic areas identified in the Mexico The close management of the thematic business plans, NDP received broad acceptance by the population, and programmatic approaches, and the wholesaling of country the new administration has already enacted key reforms budgets around results will help maintain attention to in the education and telecommunications sector. Failure strategic outcomes while maintaining the flexibility to of reform implementation could impact results negatively adjust the programs to evolving country circumstances and will require adjusting the strategy and expected out- and build in continuous learning. The WBG will system- comes to the emerging realities while capturing lessons atically assess Governance and Anti-Corruption (GAC) learned. Flexibility embedded in the CPS would allow issues in all subnational activities. this adjustment. 108. Risks from crime and violence to the program. 106. Little room exists for countercyclical lending Mexico’s national homicide rate has more than doubled in the context of limited SBL space. The risk of a less between 2007 and 2010, increasing 114 percent between favorable international context, and in particular changes 2005 and 2011. An increase in drug- and firearm-related in global monetary policies and a sluggish US economy, homicides, principally among young men, concentrated in may impact foreign exchange markets, domestic financial particular cities, explain this upward trend in crime and markets, and global financial flows. Renewed fiscal violence. However, the WBG engagement is not concen- pressure for quick disbursing IBRD financing is bound trated in areas of crime and violence (mostly border-states to be limited given the size of the exposure envelope. In with the US) reducing the chances of negative impact addressing this risk, the WBG is undertaking a compre- to the program. The WB will continue to monitor trends hensive assessment of its financial instruments to provide in crime and violence, providing support through the viable alternatives to the authorities. dissemination of its recent youth violence report, inputs COUNTRY to the proposed urbanization review, areas of engagement PARTNERSHIP 107. CPS program performance could be at risk in access to social protection, and as part of other regional STRATEGY FOR at the national and subnational levels. A sizable products on citizen security. The WB is also preparing THE UNITED undisbursed amount of some US$1.8 billion remains to a multi-year citizens’ security knowledge and convening MEXICAN be implemented over the next 3-4 years. In addressing programmatic engagement in FY14 to support the Gov- STATES portfolio performance, close supervision and portfolio ernment’s crime and violence prevention efforts. 41 Endnotes 1. Annex 5 provides a detailed description of both Mexican and World Bank’s methodologies for measuring poverty, as well as detailed data tables with poverty rates by state and by method. 2. One limitation of analyzing the official Multi-dimensional Poverty Index is that there are only three years with available data: 2008, 2010, and 2012. Thus, in order to study long-term poverty trends it is necessary to use a monetary poverty indicator, which was the previous official poverty measure in Mexico and which is still produced by CONEVAL 3. Analysis about mobility and middle class in Mexico and the region can be found in “Economic Mobility and the Rise of the Latin American Middle Class” at http://www.worldbank.org/en/news/feature/2012/11/13/ crecimiento-clase-media-america-latina. 4. Annex 4 includes the overview chapter of the policy notes prepared in 2011-12 by World Bank staff. The complete set is accessible at http://www.worldbank.org/en/country/mexico/research/all. 5. Annex 3 contains a section on recent economic events and the macroeconomic outlook. 6. Refer to “Fostering sound financial sector development”, Policy Note No.1; “Toward a more competitive business envi- ronment”, Policy Note No. 2; “Fostering innovation for productivity and competitiveness”, Policy Note, No.3. 7. Refer to “Labor Markets for Inclusive Growth”, Mexico Policy Note No.4. 8. The OECD launched the Programme for International Student Assessment (1997) to evaluate education systems 9. The largest insurance programs in Mexico are the Instituto Mexicano de los Seguros Sociales (IMSS), the Instituto de Seguridad y Servicios Sociales de los Trabajadores del Estado (ISSTE) and Régimen Estatal de Protección Social en Salud (Seguro Popular). Refer to “Social Protection”, Mexico Policy Note No.5. 10. Gender differences in poverty, as well as additional information about gender as entry points to the CPS can be found in Annex 5 and 6. 11. Refer to “Managing medium term fiscal challenges”, Mexico Policy Note No. 8; “Strengthening public revenue and expenditure management to enhance service delivery”, Mexico Policy Note No. 9; and “Strengthening sub-national public finance”, Mexico Policy Note No.10 12. Refer to “Reducing the footprint of growth”, Mexico Policy Note No. 6; and “Using natural resources in an optimal way”, Mexico Policy Note No. 7. 13. Banco de información Económica (INEGI, 2012). 14. World Bank estimate, forthcoming, Análisis de Equilibrio Económico General de la Reducción de los Subsidios a los combustibles en México. 15. OP/BP 10.00 retired the use of Adaptable Program Loans in April 2013. COUNTRY PARTNERSHIP STRATEGY FOR THE UNITED MEXICAN STATES 42 Annex 1. Summary Mexico CPS Selectivity, WBG Development Solutions and Impact on WBG Goals Specific Problem Areas or Development Solution: WBG Impact WBG Goals Expected Outcomes Challenges Addressed Tailored Package of Services Poverty16 Sh.Prosp17 Theme 1: Unleashing Productivity 1. Increased access to Credit to SMEs and poor households Programmatic knowledge and convening services High High finance and improved constrained but expansion needs supporting implementation of financial reform initiative financial inclusion. to preserve financial stability. and financial literacy. IBRD potential funding to increase Half the population without access access to financial services in isolated rural communities High High to financial services. through mobile banking and IFC investment & MIGA supported FDI to deepen MSME financial services, Capital market constrained by few private Low High financial infrastructure and access to local debt market. bond issuers and corporate equity markets. 2. Improved business Burdensome regulations limit firm Programmatic knowledge and convening services to Low High environment to support entrance and growth. Sharp disparities improve regulatory framework and improve competition private sector investment. in regulatory burden between states. at subnational level. IFC investments, as well as MIGA Concentrated markets and lack of effective supported FDI, in sectors opening to private sector. Low High pro-competition regulations, particularly at State Level, inhibit firm entrance and growth. 3. Enhanced innovation Less than adequate competition, limited Programmatic knowledge and convening services Low High capabilities for companies financing for startups, lack of long-term to improve policy design at INADEM, foster firm and in target states financing to even large companies and innovation and improve coordination on innovation and industries. fragmentation of support programs related policy making. IFC investment, as well as for SMEs. Lack of impact evaluation MIGA supported FDI, in manufacturing services and hinder effectiveness of SMEs policies agribusiness innovative and value-added companies and to support innovation and growth. companies with potential for int’l knowledge transfer. Better coordination in policy making is Low High needed to support innovation. Limited capabilities in some states and the private sector to develop innovation strategies. Outcomes will be defined Productivity potential limited by: (i) lack Potential IBRD financing of higher risk public sector - - during the next two of competition in telecommunications infrastructure projects depending on capital availability years depending on resulted in few low quality and high cost and potential MIGA involvement. IFC potential specific involvement services; and (ii) low investment in ports financing in ports logistics and telecommunication and logistics resulted in diminished capacity projects to unleash the lack of competitiveness. to support the shipment of goods. Theme 2: Increasing Social Prosperity 4. Increased skilled labor Persistent institutional constraints Bank and IFC financing to support improvements High High market participation. to labor contracts make it difficult in quality of the education system complemented to expand formal employment. by IBRD programmatic knowledge and Low level of relevant skills in labor market. convening activities supporting various High High dimensions of labor productivity agenda. Inefficiency in allocation of labor force High High due to incomplete labor market policies for facilitating job search and matching, and employment shock protection. 5. Increased use of Integrated social protection system IBRD, IFC financing for social protection systems; High High integrated social programs needed. System is fragmented, poorly knowledge and convening activities to integrate among the poor with larger targeted, inefficient, has serious coverage the different pieces of the social protection private sector participation gaps, and design elements need to be system. IFC investments and advisory services to in social services provision. changed to function as a system. support private sector participation at the state and federal levels. Convening services to support Mexico’s sharing of global best practices. COUNTRY PARTNERSHIP STRATEGY FOR THE UNITED MEXICAN STATES 43 Specific Problem Areas or Development Solution: WBG Impact WBG Goals Expected Outcomes Challenges Addressed Tailored Package of Services Poverty16 Sh.Prosp17 Theme 3: Strengthening Public Finances and Government Efficiency 6. Increased non-oil public Low public revenue collection, particularly Combination of financial and programmatic and Low High revenues and improved taxes, to address looming medium-term knowledge services, including RAS to enhance expenditure equity at budget pressures, both at federal and at Federal and subnational tax systems. the federal level and subnational levels of government. in selected states. Public sector expenditures in general, and Multi-year package of IBRD programmatic knowledge High Low social services in particular, are of low activities to support SHCP to better monitor and evaluate quality and, in some cases, do not benefit design, impact and return of social programs and to the poorest sections of the population. improve effectiveness and progressivity of fiscal system. 7. Increased adoption of Incomplete adoption of accounting, budgeting, Ongoing IBRD financing on “results based management High Low modern public sector man- procurement and general management and budgeting” combined with several grants funding agement and information modernization systems and standards in knowledge products for enhancing public sector efficiency systems at the federal federal and subnational public administration. and effectiveness at federal and subnational levels. level and selected states. 8. Integrated and Around 41 percent of Mexico’s territory, 30 IBRD risk management: DRM knowledge activities, High Average comprehensive risk percent of its GDP, and 31 percent of its with emphasis on strengthening prevention, developing management framework population exposed to three or more natural risk models, supporting states and agricultural risk in place covering key hazards. These events affect agricultural management activities, to improve the agricultural fiscal, agricultural, and production, physical assets, and human insurance market and commodity price risk financing. natural disaster risks. lives, particularly in poorest states. Non-systemic management of other contingent Continued use of financial innovations such as High Average fiscal risks such as commodity price, interest, IBRD risk management tools on loan portfolio and exchange rate, debt and financial assets non-IBRD liabilities, combined with new programmatic volatility. Need to implement an integrated knowledge activities supporting a more integrated risk management for potential shocks. contingent fiscal risk management system. Theme 4: Promoting Green and Inclusive Growth 9. Strengthened Urban development in Mexico has been Mixed sources of financial services (IBRD, CTF, GEF) High High institutional framework steadfast (77 percent urbanization rate), for urban transport transformation and reduced to manage urban car-oriented, and inefficient, with low-density GHG emissions combined with knowledge services development and reduced patterns that are not conducive to generate to inform national housing and urban policies, GHG emissions. economies of scale in: production; movements and IFC program providing advisory support to of labor and capital; and resource consumption. mass transit schemes using PPPs. Potential MIGA involvement through NHSFO or NHFO SOE structures supporting foreign investors in PPP transactions. Costs of land and water degradation due IBRD knowledge activities and IFC investment and High High to solid and liquid wastes have been advisory services to support development of a increasing each year, harming human integrated national solid waste management strategy. health, the environment and the economy. Energy production and consumption IBRD, IFC, MIGA financial services and IBRD, IFC Low High represent 60 percent of GHG emissions advisory services leveraging private sector to reduce and a large cost for the economy. emissions by increasing energy-efficient technologies at residential level, in city, and industrial buildings. 10. Reduced deforestation Forest degradation is reason for concern, IBRD leveraging AFD funds for forest management, High Average together with increase in as forests represent an essential source of emissions reduction from deforestation/degradation certified forest areas. employment, income, and livelihood for about (REDD+), IFC financing of tree plantations and 12 million people, and play an important role forest certification. IBRD/ GEF financing for in mitigating and adapting to climate change. emission-reduction technologies for agricultural SMEs combined with knowledge services for climate change legislation and economic instruments to mainstream green and inclusive growth. 11. Improved water Water availability decreased dramatically Sub-national level financing (efficiency of water High High management systems over the past 50 years. Situation utilities, regional meteorological services, water sector and expanded access worsened by inefficient use of water in modernization) combined with knowledge activities on to water services. agriculture and urban services. Service water availability and financing systems; IFC advisory and quality is below OECD standards. investment for municipal water operators and potential COUNTRY MIGA involvement in the municipal water sector. PARTNERSHIP 12. Increased Declining oil production poses challenge of IBRD, GEF, IFC, MIGA financial services for energy Average High STRATEGY FOR production of combined transforming energy matrix composition. diversification (wind, solar, cogeneration and combined THE UNITED renewable energy. solar-thermal cycles) with IBRD knowledge services MEXICAN to address environmental and social safeguards. GEF STATES funding to improve innovation in the development and implementation of clean energy technologies. 44 Annex 1A. Results Framework - Mexico Country Partnership Strategy FY14-19 Mexico National Constraints and World Bank Group Strategy FY14-19 Development opportunities WBG Interventions as part Plan (2013-18) to accelerate Milestone or of Development Solutions and Private progress toward Outcome Outcome Indicator Intermediate Indicator (highlighted IBRD engagement Sector Vision the WBG goals (2-3 years) areas closing within 2 years) Theme I: Unleashing Productivity Thematic Engagement 1. Fostering Sound Financial Sector Development Expand access to Credit to SMEs and poor Outcome 1: (a) Number of new clients main- TA reports prepared to Financial Services: credit and other households constrained Increased access to streamed into the formal financial implement key aspects of the Ongoing financial services to but expansion finance and improved sector using financial services. forthcoming financial reform. IBRD Loan: Rural Savings and Credit Sector priority areas for needs to preserve financial inclusion. Target: 1,600,000 Consolidation Loan (BANSEFI) (P123367) national development, financial stability. (July 2015) New products and IFC Investments: infrastructure, financial literacy campaigns Agrofinanzas – Loans to the agrisector small business and Half the population IFC supported by WBG advisory Banorte-Commercial banking (28213) the populations without access to (b) Volume of new loans and convening services Compartamos-Micro credits to women (29634) currently excluded financial services. to SMEs in the portfolio of have been launched. Mifel - SME Banking (29030) (4.2.2. and 4.2.4.). financial intermediaries. Alta Growth Fund - Private Equity Fund Capital market Baseline: 2.9 million Alta Ventures-Private Equity Fund-FY11 Democratize access constrained by few Target: 3.4 million Water Capital- Lease of water treatment to telecommunication private bond issuers and Interim: 3.1 million and efficient water equipment (29509) services (4.5). corporate equity markets. Credit Suisse- Capital Markets financing (c) Number of new issuances IFC supplier finance: Nemak Support entrepreneurs in the capital markets. IFC supplier finance: commercial Mexicana and strengthen Baseline: 1 SMEs (4.8.4). Target: 4 Pipeline Interim: 1 IFC Investments: Progresemos – Microfinance Knowledge Services: Ongoing IBRD PA: Sound Financial Sector Development packaging (P133788) IBRD AAA: Mexico JIT Financial Literacy Impact Evaluation Mucho Corazon (P145817) IBRD AAA: Financial Capabilities Assessment (P122665) IBRD AAA :Mexico Contingency Plan for Cooperative Financial Institutions (P144364) Pipeline IBRD RAS: Financial Crisis Exercise – Instituto para la Protección del Ahorro Bancario (IPAB) Convening Services: Ongoing IBRD Treasury Banking Services Thematic Engagement 2. Toward a More Competitive Business Environment Guarantee clear rules Burdensome regulations Outcome 2: Number of recommended laws/ IBRD: Financial Services: that provide incentives limit firm entrance and Improved business regulations/ amendments/ Roadmaps to improve for a competitive growth. Sharp disparities environment to codes enacted or government competition at state level Knowledge Services: internal market (4.7). in regulatory burden support private policies adopted to improve delivered in 3 States. between states. sector investment. competition at subnational level. Ongoing Concentrated IFC: IFC Advisory: Sub-National Doing Business (585307) markets and lack of Baseline 0 Regulations for oil, gas effective pro-competition Target 30 and telecommunications Pipeline regulations, particularly sector issued. IBRD AAA: Workplan to improve at the State Level, inhibit business indicators in Oaxaca firm entrance and growth. Increasing number of projects IBRD AAA: Roadmap to eliminate state in oil, gas, petrochemicals regulations that hamper competition COUNTRY and telecommunications. in products markets of Oaxaca PARTNERSHIP IBRD (2) Reimbursable Activities to eliminate regulations that hamper competition in products STRATEGY FOR markets in Tabasco and Estado de Mexico. THE UNITED IBRD RAS to implement Doing Business Reform. MEXICAN STATES 45 Mexico National Constraints and World Bank Group Strategy FY14-19 Development opportunities WBG Interventions as part Plan (2013-18) to accelerate Milestone or of Development Solutions and Private progress toward Outcome Outcome Indicator Intermediate Indicator (highlighted IBRD engagement Sector Vision the WBG goals (2-3 years) areas closing within 2 years) Science, Technology and Innovation Thematic Engagement 3. Fostering Innovation for Productivity and Competitiveness Make scientific devel- Less than adequate Outcome 3: Components of the innovation Changes in SME Financial Services: opment, technology competition, limited Enhanced innovation strategy have been implemented support programs have Ongoing and innovation key financing for startups, capabilities for in target states and sectors. been implemented. IBRD Loan: MX Information Technology (P106589) Thematic Engagements lack of long-term companies and Baseline: 0 States/sectors IFC Investments: of Mexico’s sustainable financing to even in target states Target: 2 States Delivery of sectorial or Calidra - Construction Materials (31587) social and economic large companies and and industries. regional innovation strategy. Norson - Livestock (32826) development (3.5). fragmentation of support IFC: Bioparques - Agribusiness (26328) programs for SMEs. Lack Number of farmers reached: IFC Equity: Metronet - IT (n/a) of impact evaluation Baseline: 5,500 Knowledge Services: hinder effectiveness of Target: 7,000 Pipeline SMEs policies to support Interim: 6,100 IBRD PA: Productivity Democratization (P146293) innovation and growth. IBRD RAS: Support to the newly created Instituto Nacional del Emprendedor (INADEM) Better coordination in IBRD AAA: Formulation of methodologies to policymaking is needed assist poor states with Innovation Strategies to support innovation. Convening Services: Limited capabilities in Ongoing some states to develop IBRD Forum: Innovative Entrepreneurship Forum innovation strategies. with INADEM and CNN Expansion (P147313) Thematic Engagement 4. Upgrading Infrastructure Support infrastructure Productivity potential Outcomes related to specific infrastructure sectors are presented in corresponding thematic areas—in transport, energy, telecommunications. development with limited by: (i) lack This specific infrastructure outcome will be defined during CPS implementation over the first two years of the CPS where the WBG long-term vision of competition in (IBRD, IFC, MIGA) will work together in positioning the Bank within the Government’s new US$316 billion infrastructure program. based on three guiding telecommunications principles: (i) balanced resulted in few low IFC could participate in new private sector investment in oil, gas, petrochemicals and telecommunications sectors. regional development; quality and high cost ser- Baseline: US$600 million (ii) urban development; vices; (ii) low investment Target: US$1.5 billion and (iii) logistical in ports and logistics Interim: US$800 million connectivity (4.2.5). resulted in diminished Promote a transport capacity to support the infrastructure that shipment of goods. lowers overall costs Theme II: Increasing Social Prosperity Thematic Engagement 5. Promoting Labor Markets for Inclusive Growth Guarantee social rights, Persistent institutional Outcome 4: (a) Improvements in ENLACE scores Teacher training Financial Services: provide social cohesion constraints to labor Increased skilled labor (math and Spanish in primary and programs initiated. Ongoing and close inequality contracts which make market participation. secondary schools, including stu- IBRD Loan: School Based Management II (P115347) gaps (3.1-3.2). it difficult to expand dents living in marginalized areas). Analysis of nutrition IBRD Loan: Compensatory formal employment. 2-year moving average of ENLACE programs on learning Education Project (P101369) test scores across school years (SY) outcomes prepared. IFC Investment: Edilar-Educational Low level of relevant Baseline (SY11 & SY12) material content (31095) skills in labor market. Spanish primary: 546 Analysis of gaps in IFC Investment: FINEM SME (28680) Math Primary: 557 skills prepared. IFC Investment: UAG -Private university Inefficiency in allocation Spanish secondary: 490 in Guadalajara (30445) of labor force due to Math secondary: 522 % of students with IFC Investment: Harmon Hall - English incomplete labor market scholarship/ financial aid, language school (29753) policies for facilitating Target (SY17 & SY18) divided by gender. (in private Pipeline job search and matching, Spanish primary: 610 institutions financed by IFC). IBRD Loan: School Based Management III employment shocks Math primary: 620 IBRD Loan: CONAFE-Community Schools Program protection. Spanish secondary: 550 Number of new projects IBRD Loan: Upper Secondary Education DPL III Math secondary: 570 in health and education Knowledge Services: supported by IFC. Ongoing Source Plan Nacional de Desarrollo IBRD PA: Improving Skills for Enhanced Labor Market Productivity (P128775) (b) % of Oportunidades youth Pipeline registered with Sistema IBRD AAA: A knowledge product on gender Nacional de Empleo. and youth violence in Mexico (multisector) Baseline: Does not exist yet IBRD AAA: Results-based financing project to Target: 2% in 2018 improve the (i) National Employment System (ii) COUNTRY Disaggregate by sex productive opportunities at the subnational level PARTNERSHIP Source: SNE database and (iii) the monitoring and evaluation system IFC: STRATEGY FOR (c) Number of students enrolled in THE UNITED institutions financed by IFC (female) MEXICAN Baseline: 52,000 (26,000 female) STATES Target: 70,000 (37,000 female) Interim: 59,000 (31,000 female) 46 Mexico National Constraints and World Bank Group Strategy FY14-19 Development opportunities WBG Interventions as part Plan (2013-18) to accelerate Milestone or of Development Solutions and Private progress toward Outcome Outcome Indicator Intermediate Indicator (highlighted IBRD engagement Sector Vision the WBG goals (2-3 years) areas closing within 2 years) Thematic Engagement 6. Promoting an Integrated Social Protection System Ensure the effective Integrated Outcome 5: (a) % of eligible Oportunidades Initial review of integrated Financial Services: exercise of social social protection system Increased use of families registered in the social protection programs rights by the entire needed. System is integrated social Oportunidades program prepared together with Ongoing population (2.1). fragmented, poorly programs among the Baseline: does not exist yet initial M&E framework. IBRD Loan: Support to Oportunidades targeted, inefficient, has poor together with Target: 30% Project (P115067) Move toward and serious coverage gaps, increased private Source: CONEVAL IBRD Loan: Social Protection in Health (P116226) equitable and inclusive and design elements sector participation IFC Investment: Hospitaria- Health services (30281) society (2.2). to be changed to in social services (b) Average unsatisfied basic needs IFC Investment: Centro Medico Puertas function as a system. provision. of the extreme poor population de Hierro - Health services (26323) Ensure access to Baseline (2009): 3.7 health services (2.3). Target (2018): 3.0 Pipeline Source: indicator in the Expand access to National Development Plan Knowledge Services: social security (2.4). Ongoing (c) % of poor registered in the IBRD PA: Mexico Poverty (P133559) Unified Registry of Beneficiaries IBRD AAA: MX Multi-sector & State Baseline: Does not exist yet Level Work (IO 2046548) Target: 40% IBRD AAA: The Distributional Effects of Possible to disaggregate by sex Drug Related Crime and Violence across Source: CONEVAL and Municipalities in Mexico (TF012498) the URB system IBRD AAA: Reforming the National Targeting System (P129698) IFC: IBRD PA: MX PKS - Social Protection (d) Number of public and Health (P129698) patients treated by private players financed by IFC. Pipeline Baseline: 226,000 IBRD AAA: Market accessibility to the poor in Target: 260,000 Mexico. An overlap of road network maps and Interim: 240,000 poverty maps to identify market access by the poor. IBRD PA: Mexico Social Protection and Health Theme III: Strengthening Public Finances and Government Efficiencies Thematic Engagement 7. Managing Medium-Term Fiscal Challenges at National and Subnational Levels Maintain macroeco- Low public revenue Outcome 6: (a) Taxes as a percentage of GDP Submission to the Congress Financial Services: nomic stability by: collection, particularly Increased non-oil Baseline (2012): Non-oil of a Federal tax reform that (i) protecting public taxes, to address looming public revenues and Federal revenues as a increases tax collection Knowledge Services: finances from mac- medium-term budget improved expenditure percentage of GDP: 15.0% as a percentage of GDP. roeconomic shocks; pressures, both at federal equity at the Subnational revenues as a Ongoing (ii) strengthening and at subnational levels federal level and percentage of GDP : 0.93% Submission to the IBRD PA: Fiscal Challenges PA (P143967) revenues; and (iii) of government. in target states. Target (2019): Non-oil Congress, by SHCP, of a Law IBRD PA: Mexico Poverty (P133559) improving budget Federal revenues as a strengthening subnational management, in order Public sector percentage of GDP: 18% government finances. Pipeline to generate savings for expenditures in general, Subnational revenues as a IBRD AAA: Evaluation of tax evasion and tax priority programs (4.1). and social services in percentage of GDP : 2.0 % Adoption of official method- administration for the Tax Administration Office. particular, are of low ology for the computation of IBRD AAA: Public Expenditure Review (PEFA) quality and, in some (b) Inequality after taxes the Social Discount Rate for IBRD AAA part of Fiscal Management PA: cases, do not benefit and transfers. the evaluation of investments Development of a Methodology and a quantitative the poorest sections Baseline (2010): Difference in the public sector and estimate for the social discount rate. of the population. between Final Income Gini and revision of the Social IBRD AAA (part of Fiscal Challenges PA): Market Income Gini: 0.08 Discount Rate currently used. Development of a medium-term fiscal Target (2019): Difference framework (MTFF) at the subnational level and between Final Income Gini and Delivery to SHCP of a CGE support to SHCP in setting up a unit that will Market Income Gini: 0.11 model and simulation tools be responsible for the implementation and to assess revenue potential supervision required under the new subnational Note: using method by Lustig, of alternative tax reforms. fiscal discipline and borrowing framework. Pessino and Scott (2012) COUNTRY PARTNERSHIP STRATEGY FOR THE UNITED MEXICAN STATES 47 Mexico National Constraints and World Bank Group Strategy FY14-19 Development opportunities WBG Interventions as part Plan (2013-18) to accelerate Milestone or of Development Solutions and Private progress toward Outcome Outcome Indicator Intermediate Indicator (highlighted IBRD engagement Sector Vision the WBG goals (2-3 years) areas closing within 2 years) Thematic Engagement 8. Promoting Public Sector Modernization Modern state focusing Incomplete adoption of Outcome 7: Increase in transparency and Production of a World Bank Financial Services: on results, transpar- accounting, budgeting, Increased adoption of Access to Fiscal Information Index. reports with diagnosis and Ongoing ency, self-evaluation procurement and modern public sector recommendations for public IBRD Lending: MX Results Based Mgmt. and effective use of general management management and Baseline (2012) average 70.8, sector modernization in: and Budgeting TA (P106528) public resources modernization systems information systems Target (2018) 10% increase. Oaxaca State (Cross-Sector and standards in federal at the federal level Source: AR Consultores Puebla State Knowledge Services: Strategy- Close and and subnational public and in selected states. Federal District. Ongoing Modern Government). administration. Increase in the Open Budget Index: IBRD PA: Public Sector and Governance (P132906) Baseline (2012): 61 Federal tax collection IBRD AAA: Institutional Strengthening Target (2018): 70 agency (SAT) of Congress II (P125982) Source: International Ministry of Social IBRD AAA: Oaxaca: Strengthening the States Budget Partnership Development (SEDESOL) Management capacities (P129968) National Congress. IBRD AAA: Strengthening & Consolidation of Internal Control Framework of Federal Government (P120116) IBRD AAA: Internal Control IT system for the SFP (P125764) IBRD AAA: Development of Professional Competencies of ASF (P125717) IBRD AAA: Fostering transparency, accountability and efficiency in public service delivery in the State of Puebla IDF (P144701) IBRD AAA: Oaxaca RAS - Advisory Services for Strengthening Public Sector Management (P129050) Pipeline IBRD AAA: Development of a rapid diagnostic tool for budgeting and performance management IBRD AAA: Development of an “App” on macro data for Mexico IBRD AAA: SEDESOL RAS for strengthening managerial capacities of SEDESOL Convening Services: Ongoing IBRD MoU: Función Pública (IO2059300) Thematic Engagement 9. Implementing an Integrated Sovereign Risk Management Framework Safeguard the Around 41% of Mexico’s Outcome 8: Integrated system for risk Recommendations Financial Services: population and its territory, 30% of its GDP, Integrated and management adopted by for the creation of an assets from the impact and 31% of its population comprehensive Federal Government. integrated system of risk Ongoing of natural or man- are exposed to three or risk management management delivered. IBRD: Mexico CAT Bond II (US$290 made disasters (1.6). more natural hazards. framework in Comprehensive disaster risk Million) (final stages of execution) These events affect place covering key management strategy adopted IBRD: Use of risk management tools for agricultural production, fiscal, agricultural and that balances efforts in risk outstanding loans (e.g. interest rate conversions, physical assets, and natural disaster risks. identification, risk prevention and stand-alone interest rate swaps) human lives, particularly management, and post-disaster in the poorest states. reconstruction. Pipeline Comprehensive agriculture Non-systemic risk management strategy Knowledge Services: management of other adopted that improves the contingent fiscal risks efficiency of agricultural insurance Ongoing such as commodity markets and sets effective IBRD PA: Strengthening Mexico’s Disaster price, interest, exchange mechanisms to manage risks Risk Management (P146241) rate, debt and financial arising from price volatility in MX Programmatic Engagement in DRM (P130848) assets volatility. Need to agricultural commodities. TA to SHCP in risk modeling implement an integrated Contribution to Urbanization Review risk management for Agriculture Risk Management in Mexico (P132987) COUNTRY potential shocks. Agriculture Insurance Market Review (P130161) PARTNERSHIP Pipeline STRATEGY FOR Cross-sectoral study on the impact of THE UNITED rising commodity prices in Mexico MEXICAN STATES 48 Mexico National Constraints and World Bank Group Strategy FY14-19 Development opportunities WBG Interventions as part Plan (2013-18) to accelerate Milestone or of Development Solutions and Private progress toward Outcome Outcome Indicator Intermediate Indicator (highlighted IBRD engagement Sector Vision the WBG goals (2-3 years) areas closing within 2 years) Theme IV: Promoting Green and Inclusive Growth Thematic Engagement 10. Reducing the Footprint of Growth (i) Invest in basic, Urban development in Outcome 9: (a) Increased capacity of the Completion of Financial Services: complementary, and Mexico has been stead- Strengthened new Secretaría de Desarrollo Urbanization Review. productive social fast (77% urbanization institutional Urbano (SEDATU) to address Ongoing infrastructure projects; rate), car-oriented, framework to manage urban challenges. Increase in the number IBRD Loan: Urban Transport Transformation and (ii) provide and inefficient, with urban development Baseline: no capacity. of cities participating in Program (UTTP) (P107159) basic services, housing low-density patterns and reduced GHG Target: in 3 areas: (i) Transport project to finance IBRD Carbon Finance: Mexico City quality, and community that are not conducive emissions. strengthened land use planning; BRT infrastructure and Insurgentes Bus Rapid Transit System social infrastructure to generate economies (ii) use innovative land-based clean technology buses. Carbon Finance Project (P082656) in Priority Areas with of scale in: production; financing mechanisms to IBRD GEF: Sustainable Transport and Air high and very high movements of labor and provide infrastructure in new Improvements to existing Quality Program (STAQ) (P114012) marginalization (2.2.1). capital; and resource low-income settlements; and solid waste management IBRD Loan: Efficient lighting and consumption. (iii) support urban mobility program (PRORESOL). appliances (P106424) Modernize, strategies geared towards public IBRD GEF: Mexico Efficient Lightning expand and maintain Costs of land and water and non-motorized transport. Inputs in new national and Appliances (P120654) urban transport degradation due to solid strategy for solid waste IFC Investment: Optima Energia- Energy infrastructure, and and liquid wastes have (b) Expanded use of TRACE to sev- management and buy service company ESCO (28383) improve connectivity been increasing each eral large and intermediate cities in from key actors. using strategic and year, harming human Baseline: 2 pilot cities TRACE pilot completed and IFC Investments: efficiency criteria (4.9.). health, the environment Target: 10 additional cities new set of cities determined Water Capital- Lease of water treatment and the economy. and ready to roll out on and efficient water equipment (29509) Achieve an integrated (c) Reduction in GHG emissions public buildings and assets. Vinte- Low income housing (26292) waste management Energy production attributable to (i) the energy Artha Capital- Sustainable urban projects (30836) system that: (i) and consumption efficiency project from 0 in 2012 Completion of Efficient Light- includes hazardous represent 60 percent to 9 MtCO2e in 2019; and (ii) ing and Appliances project Pipeline and special handling of GHG emissions in other initiatives: PMR, CCS, and and its additional finance. of waste; (ii) promotes Mexico and a large GV & FR (each program to set Knowledge Services: the recycling of cost for the economy. specific baselines and targets). Completion of activities materials; and (iii) PMR, CCS, GV & FR. Ongoing minimizes risks to the IFC: IBRD AAA: Mexico Urbanization Review (P133243) population and the (d) Number of projects Specific tools to CNH in IFC Advisory: Green building investment across environment (4.4.3). with EDGE certification. terms of data management sectors (City Express, Vinte, Hospitaria) through Baseline: 3 and economic analysis the Leadership in Energy & Environmental Strengthen national Target: >5 of public policies Design certification program climate change policy Interim: 4 IBRD AAA: Market Instruments for Climate to foster a competitive, Change Mitigation - Participation of Mexico in sustainable, resilient the Partnership for Market Readiness (PMR) and low-carbon - energy, housing and transport (P129553) economy. IBRD AAA: Carbon Capture, Utilization and Storage Development in Mexico (P131200) Promote the use of IBRD AAA: Greening Mexico’s Electricity Generation advanced, energy by Internalizing Externalities (P132533) efficient technologies IBRD AAA: Tool for Rapid Assessment and systems that of City Energy (TRACE) Model in Pilot contribute to the Cities in Latin America (P133060) reduction of GHG emissions (4.4.3). Pipeline IBRD AAA: Mainstreaming Safeguards at Institutional Level in Mexico IBRD RAS: Housing policy IBRD-AAA: TA in solid waste management Convening services: Pipeline IBRD tailored support to CNH COUNTRY PARTNERSHIP STRATEGY FOR THE UNITED MEXICAN STATES 49 Mexico National Constraints and World Bank Group Strategy FY14-19 Development opportunities WBG Interventions as part Plan (2013-18) to accelerate Milestone or of Development Solutions and Private progress toward Outcome Outcome Indicator Intermediate Indicator (highlighted IBRD engagement Sector Vision the WBG goals (2-3 years) areas closing within 2 years) Thematic Engagement 11. Using Natural Resources in an Optimal Way (i) Promote and Forest degradation is Outcome 10: Increase in Forest under improved Increased number of Financial Services: encourage the reason for concern, Reduced deforestation management and reduced sustainable community incorporation of as forests represent together with carbon emissions. enterprises in forests Ongoing timber and non-timber an essential source of increased certified Baseline: 163 million targeted by the Forests and IBRD GEF: Adaptation to Climate Change surfaces with employment, income, forest areas. hectares in 2012 Climate Change project. on the Coastland Wetlands (P100438) forestry potential; (ii) and livelihood for about Target:10% improvement IBRD Loan: Forests and Climate Change strengthen social cap- 12 million people, and in 5 years Action plan prepared SIL (P123760) / FIP (P124988) ital and management play an important role in Source: CONEVAL to increase certified IBRD GEF: Sustainable Production capabilities of ejidos mitigating and adapting wood production. Systems and Biodiversity (P121116) located in forests to climate change. IBRD Loan: Sustainable Rural Development and areas with high (P106261) + Additional Financing FY13 value for biodiversity (P130623) + GEF FY09 (P108766) conservation (4.4.4). IBRD GEF: Sustainable Rural Development (P108766) IBRD Loan: Modernization of the National Meteorological Service (MOMET) (P126487) IFC Investment: Proteak- Certified teak plantations (31195) Pipeline IBRD GEF: Conservation of Coastal Watersheds (P131709) Knowledge Services: Ongoing IBRD AAA: Mexico FCPF Readiness Preparation Grant (P120417) Pipeline IBRD PA: Environmental Policy: technical support to enhance CC legislation, analysis of fiscal instruments for Green and inclusive growth, CC public expenditure review. IBRD AAA with Treasury: Assessment of potential forest bond (with Bank Treasury). Implement a Water availability Outcome 11: (a) Improved standard PROME develops Financial Services: sustainable water has decreased Improved water performance utility indicators in effective approach to increase management that dramatically over the management systems target municipalities and states. efficiency in management Ongoing ensures access to all past 50 years, situation and expanded access Baselines and targets to be systems at subnational level. IBRD Loan: Water Sector Efficiency Mexicans (4.4.2). that is worsened by an to water services. developed with the Oaxaca water Improvement Program (PROME) (P121195) inefficient use of water project now under preparation. Oaxaca water sector in agriculture and urban modernization project under Pipeline services. Service quality implementation. IBRD Loan: Oaxaca Water and Sanitation (P145578) is below OECD standards. Knowledge Services: Ongoing IBRD AAA: Mexico GPOBA: Mexico PROME OBD Component Pilot Support (P125716) IBRD AAA: Water Finance System - (TF099439) Pipeline IBRD AAA: TA Sanitation for Acapulco Bay IBRD RAS: Improving management of Cutzamala watershed Convening Services: Ongoing IBRD Convening: Water Sector Adaptation COUNTRY Technical Cooperation (P122166) PARTNERSHIP STRATEGY FOR THE UNITED MEXICAN STATES 50 Mexico National Constraints and World Bank Group Strategy FY14-19 Development opportunities WBG Interventions as part Plan (2013-18) to accelerate Milestone or of Development Solutions and Private progress toward Outcome Outcome Indicator Intermediate Indicator (highlighted IBRD engagement Sector Vision the WBG goals (2-3 years) areas closing within 2 years) Supply energy by Declining oil production Outcome 12: (a) Increased eolic energy Completion of La Financial Services: having competitive poses the challenge of Increased production production and avoided emission Venta project with analysis prices, quality and transforming the energy of combined of MtCO2e (La Venta III). of lessons learned and Ongoing efficiency along the matrix composition. renewable energy. Baseline: 0 recommendations to IBRD GEF: Large Scale Renewable Energy supply chain (4.6). Target:2,200 GWh expand technologies in Development (La Venta III) (P077717) Ensure the supply a sustainable way. IBRD Carbon Finance: Wind Umbrella of crude oil, natural Baseline: 0 (La Venta II) (P080104) gas and oil products Target: 1.15 MtCO2e IBRD GEF: GEF Hybrid Solar Thermal Power that the country Plant (Agua Prieta II) (P066426) needs (4.6.1.). (b) Increased solar energy: Total IBRD Loan + GEF: Integrated Ensure a rational Renewable Energy Technology Completion of Integrated Energy Services (P088996) electricity supply consumption per beneficiary Energy Services Project. throughout the country household in MWh/year. IFC Investments: (4.6.2.). EURUS- Wind power (28434) Base line: 0 EDF La Ventosa- Wind power (28070) Target: 2.077 Aura Solar- Solar Power (32871) Comemsa- Solar energy equipment (30229) IFC: (c) Number of renewable Pipeline energy projects. Baseline: 3 Report on geothermal Knowledge Services: Target: 7 energy prospects delivered Interim: 2 Ongoing IFC Advisory: Sustainable Energy Finance Mexico (583007) COUNTRY PARTNERSHIP STRATEGY FOR THE UNITED MEXICAN STATES 51 Annex 2. Mexico CPS FY08- 13 Completion Report Acronyms for the CPS completion report AAA Analytical Advisory Assistance AF Additional Financing AFD Agence Française de Développement AML Anti-money laundering APL Adaptable Program Loan BANSEFI Bank of Financial Services (Banco de Servicios Financieros) CATT Customs Assessment Tool for Trade CCT Conditional Cash Transfer CFE Federal Electricity Commission (Comisión Federal de Electricidad) CGAP Consultative Group to Assist the Poor CMU Country Management Unit CONAFE National Council for Educational Development (Consejo Nacional de Fomento Educativo) CONAGUA National Water Commission (Comisión Nacional del Agua) CONEVAL National Evaluation Committee (Consejo Nacional de Evaluación) CPPR Country Portfolio Performance Review CPS Country Partnership Strategy CPSPR Country Partnership Strategy Progress Report CY Calendar Year DPL Development Policy Loan ECD Early Childhood Development ESMAP Energy Sector Management Assistance Program ESW Economic Sector Work FBS Fee Based Services FSAP Financial Sector Assessment FY Fiscal Year GEF Global Environment Facility GHG Greenhouse Gas COUNTRY GoM Government of Mexico PARTNERSHIP IADB Inter-American Development Bank STRATEGY FOR THE UNITED MEXICAN STATES 52 IBRD International Bank for Reconstruction and Development IDF Institutional Development Fund IFAI Federal Access to Information Institute (Instituto Federal de Acceso a la Información) IFC International Finance Corporation IT Information Technology IMF International Monetary Fund MoU Memorandum of Understanding NAFIN Nacional Financiera – Development Bank MFN Most Favored Nation MWh Megawatt hour PATME Modernization of the Water and Sanitation Sector TA Project (Programa de Asistencia Técnica para el Mejoramiento de Eficiencia) PDO Program Development Objective PEC Programa de Escuelas de Calidad PET Temporary Employment Program (Programa de Empleo Temporal) PHRD Policy and Human Resources Development Fund PPP Public-Private Partnership PROTRAM Programa Federal de Apoyo al Transporte Urbano Masivo R&D Research and Development RAS Reimbursable Advisory Services SAGARPA Ministry of Agriculture, Livestock, Rural Development, Fisheries and Food SAT Revenue Administration System (Sistema de Administración Tributaria) SBA Sustainable Business Advisory SCT Ministry of Communications and Transport (Secretaria de Comunicaciones y Transportes) SEDESOL Ministry of Social Development (Secretaría de Desarrollo Social) SFLAC Spanish Fund for Latin America and the Caribbean SHCP Ministry of Finance (Secretaría de Hacienda y Crédito Público) SHF Federal Mortgage Society (Sociedad Hipotecaria Federal) SME Small-Medium Enterprises TA Technical Assistance COUNTRY WBG World Bank Group PARTNERSHIP WSS Water and Sanitation Sector STRATEGY FOR THE UNITED MEXICAN STATES 53 Completion report I. INTRODUCTION development solutions. The Government requested financing in order to have access to disbursements of a record US$7 billion over the two-year period 1. This Country Partnership Strategy Completion (CY09-10) to meet the global challenge. The initial Report (CPSCR) is a self-evaluation by the World Bank CPS program was strategically adapted to accelerate Group (WBG) team of its performance in implementing disbursements through policy-based loans addressing the Country Partnership Strategy FY08-13 (Report # key structural reforms and several quick-disbursing 42846-MX). The CPS FY08-13 was jointly prepared investment loans targeted to the poor. Knowledge by the World Bank and IFC in collaboration with the services, organized around integrative programmatic Government of Mexico. It was well aligned both with approaches, leveraged World Bank resources and Mexico’s six-year political cycle and the country prior- grants around priority CPS themes. The knowledge ities of President Calderon’s administration as stated in program experienced a gradual shift from traditional the 2007-12 National Development Plan (NDP). Early in economic sector work (ESW) reports to just-in-time its implementation, the CPS provided a framework for a pieces, programmatic approaches, and demand-driven strong and flexible knowledge-focused partnership with reimbursable services, showing flexibility and respon- a more limited financing relationship and focused knowl- siveness to evolving client demand. edge and financial engagement in five key thematic areas: (a) accelerating growth; (b) improving competitiveness; 3. While lending volumes declined after the crisis (c) promoting social inclusion and reducing poverty; (d) for IBRD, IFC financing increased significantly in developing infrastructure and assuring energy security a countercyclical path. IBRD lending declined from and environmental sustainability; and (e) strengthening US$6.4 billion approved in FY09 to US$50 million in institutions. FY12. Key areas of IBRD support in response to the global crisis included poverty alleviation and increased 2. The CPS Progress Report (CPSPR) FY08-10 social safety nets, as well as structural reforms in hous- (Report #52776-MX) reaffirmed its support to ing, environmental, and climate change sustainability. the five original themes but adapted the World IFC commitments, however, expanded from US$84 Bank Group (WBG) strategy with a new integrat- million in FY09 to a robust US$1,768 million at the end ed engagement model to address client needs in of FY13, following strong demand for its financing and the context of evolving country developments integrated solutions to private sector development chal- and global challenges. This new engagement model lenges. IFC demand increased mostly in the financial sought to maximize the impact of a tailored package markets, manufacturing, retail, and property sectors. COUNTRY of WBG financial, knowledge, and convening services. The IFC Mexico program focused on strategic priorities PARTNERSHIP STRATEGY FOR The CPS was flexible enough to provide fast response of operating in frontier regions, supporting micro, small, THE UNITED to emerging financing needs to the public and private and medium-size enterprises and reducing the private MEXICAN sector following the 2008-09 global financial crisis, sector’s impact on climate change. STATES while delivering a broad knowledge agenda using inte- grated and tailored packages of services in delivering 4. The WBG knowledge program remains its 54 comparative advantage. Demand for WBG knowl- export sectors suffered as a result of the downturn, and edge and convening services have become an essential job losses had an impact on poverty rates.18 component of the WBG engagement with Mexico. WBG knowledge and advisory products have matured through 10. Moreover, remittance flows also declined as the innovative client-driven approaches aligned to critical Mexican immigrant population in the United States strategic and global areas such as addressing the climate suffered significant job losses.19 change challenge. 11. Credit to the private sector was also constrained, as 5. The CPSCR describes and evaluates the support local branches of international commercial banks became provided through the delivery of a new approach hesitant to lend and even hoarded liquidity. Economic in packaging financial, knowledge, and convening activity declined by 4.7 percent in 2009. The difficult services aimed to provide tailored development economic and social situation was exacerbated in April solutions. The CPSCR takes into account the crucial by the AH1N1 influenza epidemic in Mexico, which was role that knowledge and convening services played estimated to have reduced GDP by 0.3 to 0.5 percent alongside financial services to achieve CPS outcomes in in 2009. Moreover, organized crime (drug trafficking, the five key thematic areas. kidnappings, killings, etc.) had direct and indirect costs to the country’s economy, including expenditures made 6. The CPSCR seeks two main purposes:  First, by individuals, firms, and governments to prevent or evaluate the performance of the CPS program in achiev- respond to crime, as well as the multiplicative effects ing the outcomes the WBG expected to influence within or externalities created by criminal actions, such as the CPS period as stated in the updated CPSPR results reductions in economic growth or limited governance.20 matrix; and second, assess the performance of the WBG in delivering the joint World Bank-IFC CPS program. 12. After the global financial crisis of 2008, Mexico experienced a deep but brief recession in 7. In summary, program performance was 2009. Growth resurged despite turbulence in Europe, “satisfactory” a nd the WBG performance in imple- in part because of the slow but steady recovery in the menting the strategy was “satisfactory”, based on an United States. Real GDP growth expanded 5.1 percent extensive analysis of the CPS program achieving the in 2010, moderating to 4.0 and 3.8 percent in 2011 and objectives throughout the six-year implementation 2012, with an expected deceleration to 1.5 percent in period. Lessons from the evaluation of the closing CPS 2013. will help formulate the new CPS program for the next six years. III. PROGRAM II. COUNTRY PERFORMANCE DEVELOPMENTS 13. The program performance evaluation reports on expected CPS program results as revised by the CPSPR. 8. The strategic focus of the Government of Mexico During the CPS period, the Bank centered its support was to confront longstanding challenges. By December in five thematic areas that contained 28 CPS outcomes 2006, the Mexican economy had transformed its export (Table 1). Overall, the WBG program performance is rated base from a dependence on petroleum products to “satisfactory”. manufacturing goods. Fiscal discipline and strong fiscal policy and debt management frameworks enabled the 14. The analysis of results in each thematic area is orga- authorities to conduct an adequate countercyclical poli- nized as follows: (a) sector context and challenges facing cy response to the 2008-09 financial crisis; the financial the thematic area; (b) introduction to CPS outcomes for system, having been battered by the 1995 crisis, had each theme; and (c) package of financial, knowledge, and been rebuilt and a sound regulatory framework was well convening services for each CPS outcome. Each outcome established. The authorities took appropriate actions presents the results of the IBRD-IFC joint program and to maintain order in foreign exchange and domestic provides a comprehensive assessment of all elements of financial markets. the WBG program (not just lending activities). Details COUNTRY of the program performance are presented in Annex 1A, PARTNERSHIP 9. Mexico faced a deteriorating global economic Summary of CPS Program Self-evaluation, providing a STRATEGY FOR environment along with the parallel negative clear assessment of each CPS outcome, a brief reference THE UNITED impacts of the food crisis and the influenza pan- to supporting evidence, and specific lessons or sugges- MEXICAN demic, as well as other internal issues related to tions derived from the evaluation to be taken into account STATES organized crime. In mid-2008, investment in dynamic by the new CPS program. 55 ••ANNEX 2 TABLE 1. Summary Assessment of Mexico CPS Outcome Areas Thematic Areas and Outcome Areas CPS Rating I: Accelerating Growth 1. Countercyclical Fiscal Policies During 2009 While Adopting… Partially Achieved 2. Implementation of Regulatory Reforms to Foster Financial Sector... Achieved 3. Enhancement of Short Term Employment Support Programs… Achieved 4. Improved Competitiveness by Lowering International Trade Costs.. Achieved II: Improving Competitiveness 5. Strengthening and Expanding the Government’s Quality Schools… Achieved 6. Greater Support for Improved Coverage and Quality of Education... Achieved 7. Improved Relevance of Upper Secondary Education Achieved 8. Equitable Expansion of Tertiary Education Through Student… Achieved 9. Improved Human Skills, Infrastructure, Links Between Local… Partially Achieved III: Promoting Social Inclusion 10. Increase Capacities in Health, Nutrition and Education of Poor… Achieved 11. Preserve and Expand the Popular Health Insurance’s Coverage… Achieved 12. Improve Access to ECD Services and Learning Outcomes… Achieved 13. Strengthen the Capacity of the Mexican Health System… Partially Achieved IV: Developing Infrastructure, Assuring Energy Security and Env. Sustainability 14. Development of Massive Urban Transport Evaluating Alternative.. Achieved 15. Catalytic Use of Clean Development Mechanism to Foster… Achieved 16. Improve Federal Housing System to Facilitate Access… Partially Achieved 17. Tools and Instruments to Induce Local Authorities to Improve… Achieved 18. Provision of Environmental Services of National and Global… Achieved 19. Increase Access to Efficient and Sustainable Integrated Energy… Partially Achieved 20. Regulatory Monitoring and Financial Framework for Low… Partially Achieved 21. Reduce GHG (CO2) Emission Through the Adoption… Achieved 22. Promoting Adaptation to Climate Change Achieved V. Strengthening Institutions 23. Selected Federal Departments and Agencies Providing… Partially Achieved 24. Improved Administration in Selected Municipal Governments Achieved 25. Improved Efficiency of Customs Processes Not Achieved 26. Strengthened Fiscal Transparency, Governance & Accountability Partially Achieved 27. Support the Improvement of Institutional Performance of... Partially Achieved 28. Improved Capacity Building and Communication Practices Achieved A. Thematic Area I: focus on the immediate challenges of stabilizing the fiscal Accelerating Growth accounts and reactivating the economy, while still advancing longer-term reforms. The program focused on the following outcomes: (a) promoting measures to enhance medium-term COUNTRY 15. To achieve a sustainable level of growth of 5 percent, fiscal sustainability and countercyclical fiscal policies; (b) PARTNERSHIP STRATEGY FOR this theme focused on Mexico’s agenda of long-term reforms promoting regulatory reforms to foster financial sector access THE UNITED to strengthen public finances, improve the business climate, and consumer protection; (c) enhancing short-term employ- MEXICAN promote regulatory reform, enhance innovation, as well as ment programs, while stimulating labor market efficiency STATES investment in infrastructure and human capital. Yet, with and productivity; and (d) improving trade competitiveness the advent of the global crisis in 2008, support shifted to by reducing and simplifying tariffs and customs processing. 56 Countercyclical Fiscal Policies During 2009 19. A package of ongoing financial and technical While Adopting Measures to Enhance Medium operations with the development bank BANSEFI also Term Fiscal Sustainability for 2010 and Beyond, contributed to give access to financial services to more Including an Increase in Non-oil Tax Revenue and than 600,000 low-income families and to more than 10 Improvements to Public Expenditure Management million clients in 2012 (above the 9 million target). For Mexico as a whole, the number of outlets providing finan- 16. At the time of the crisis, market concerns about cial services increased to 20,297 in 2012 from 10,354 Mexico focused on falling oil production and the abil- in 2010, more than the 35 percent expected for 2010 by ity to maintain the 2009 fiscal stimulus. At the core of the CPS. Mexico was also successful in focusing global the Bank’s response to support the authorities was an attention to the topic of financial inclusion as the World Economic Response DPL of US$1.5 billion. The oper- Bank shared its experience in this topic during Mexico’s ation built on previous knowledge services, including G20 Presidency during 2012. Bank studies on capital markets development and financial sector competitiveness. In addition, it built on 20. IFC supported financial sector deepening by invest- just-in-time technical assistance to support economic ing in BANORTE, the only locally controlled large bank policies that helped mitigate the negative effect of the in Mexico, which received a common equity investment crisis, assess its distributional impacts, and strengthen of up to US$150 million to strengthen its balance sheet the framework for economic recovery. Programmatic and help resume the lending activity in the country. Knowledge Services on public expenditure management IFC’s Advisory and Investment Services included: (a) successfully informed policymakers in these areas in housing finance aimed at lower-income households; (b) preparation of the long-awaited fiscal reform. Despite microfinance to service microloans in frontier regions; the crisis, non-oil tax income increased from 9.9 percent and (c) SME finance/ agribusiness investments in Fin- of GDP in 2008 to 10.0 percent in 2010, although less terra, Agrofinanzas, and in Mifel. At the end of the CPS than the 10.3 percent expected partly due to higher than period, Agrofinanzas reached over 5,000 farmers and expected growth. Yet, as a result of a recently approved Compartamos, Finterra, Mifel, and Agrofinanzas together fiscal reform on October 31, 2013, the Mexican Ministry supported a total of 2.8 million loans for micro, small, and of Finance expects to raise non-oil tax income from 9.9 medium-size enterprises for a volume of US$1.6 billion. percent in 2013 to 10.3 percent in 2014. [The expect- ed outcome was “partially achieved”.] Enhancement of Short-Term Employment Support Programs While Developing Implementation of Regulatory Reforms Medium-Term Reforms for Labor Market to Foster Financial Sector Access, Efficiency and Labor Productivity Consumer Protection and Stability 21. During the 2008-09 recession, the Mexican labor 17. The financial sector, which withstood the global market experienced a severe crisis. The expansion of the financial crisis, was seen as an important player in Mex- Temporary Employment Program (PET) supported by the ico’s economic recovery. In response to the impact of the Economic Response DPL provided a financial buffer for global financial crisis on the real economy, the WBG built lower-income segments of the population, substantially on its longstanding policy dialogue and investment track increasing the number of hired beneficiaries through record with Mexico on financial sector development, in- PET from 365,000 in 2008 to 897,000 in 2010 (above the cluding a series of initiatives: (a) to increase competition 650 thousand target for 2010). The DPL built on Bank’s and provide better financial services to the private sector knowledge services with the Ministry of Social Develop- and consumers; and (b) to deepen financial markets, as ment (SEDESOL) on productivity and employment. A measured by increased financing, including bank credit, series of policy papers, notes, and micro-simulation ex- publicly traded debt, and equity investment. [The ex- ercises complemented targeted just-in-time assistance. pected outcome was “achieved” and exceeded.] [The expected outcome was “achieved”.] 18. In FY12, a Financial Sector Assessment (FSAP) provided a roadmap over the medium term for reforms Improved Competitiveness by Lowering aimed at strengthening financial sector stability and International Trade Costs via Reduction of foster sound financial sector development. The Bank MFN Tariffs and Simplification of the Trade supported these efforts with technical assistance to the Tariff Regime and Customs Processes COUNTRY Ministry of Finance and a report recommending reforms PARTNERSHIP in the regulation of the insurance and annuities market. 22. In December 2008, Mexico adopted an ambitious STRATEGY FOR In addition, the Bank prepared several grants for assess- reduction of its Most Favored Nation (MFN) tariff rates THE UNITED ing the poverty and distributional impacts of the financial for nonagricultural products. The World Bank supported MEXICAN crisis and providing evidence-based and gender-sensi- this effort through the Economic Response DPL and a STATES tive policy advice. package of knowledge and convening services. The 57 average general MFN tariff rate fell from 10.4 percent in learning outcomes of children by increasing the number 2008 to 5.3 percent in 2010, (i.e. the CPS 2010 target), of basic education schools participating in the quality and may reach 4.3 percent by the end of 2013. Several improvement program, known as Programa de Escuelas indicators were also used to measure progress towards de Calidad (PEC), from 39,000 to over 50,000 schools. simplification of tariff regime. The reduction in rates and As of June 2013, over 26 percent of all basic education increase in the number of duty free tariff lines resulted schools are participating in the PEC program, up from in a simpler tariff structure. The number of duty free 20 percent in 2010 and well above the 23 percent tariff lines was increased from 20 percent in 2008 to 58.7 CPS target set for 2014. [The expected outcome was percent in 2010 and to 61 percent in 2011. The reforms “achieved”.] supported by the Bank rationalized the borrower’s tariff structure, reduced distortions, and simplified Mexico’s trade regime. Greater Support for Improved Coverage and Quality of Education in Poor Municipalities 23. The Bank’s financial support also built on a Cus- toms Assessment Tool for Trade (CATT) that improved 26. The School Based Management project phases I trade quality by promoting excellence in customs and II helped to improve the quality of education as performance management; technical assistance on ag- measured by increased coverage, social participation ricultural trade for sensitive agricultural commodities; and educational outcomes. The School Based Manage- and South-South knowledge exchanges with Africa, ment I project contributed to increase the number of Asia, and other Latin American countries. These activ- schools participating in the Quality Schools Program ities achieved their goals of assisting the Government (PEC) from 10.3 percent during 2006 to 20.35 percent of Mexico in designing policies to respond to changes in 2009. With the support of the School Based Man- in market conditions for strategically important crops, agement II, by January 2013, the percentage of basic linking extension services with agricultural financing, and special education schools participating in PEC and promoting Mexico’s competitiveness in an environ- increased from 20.3 percent to 26.7 percent. The ment of commodity price volatility. At the same time, percentage of poor schools located in highly margin- IFC committed US$54 million in guarantees through alized and marginalized areas participating in the PEC the Global Trade Finance Program (GTFP) to ensure the program also increased from 38.4 percent in 2010 to flow of trade credit in the Mexican market. Despite this 44.5 percent in 2013 (the project is on track to meet volume of commitments in the CPS period, Mexico’s the 55% outcome for 2014). [The expected outcome demand for GTFP is low, relative to other countries in was “achieved”]. the program, mostly due to strong and established trade links with the United States. [The expected outcome was “achieved”.] Improved Relevance of Upper Secondary Education B. Thematic Area II: Improving 27. The Bank supported the Government through DPLs Competitiveness improving the quality and relevance of upper secondary education.22 These DPLs resulted in increased flexibility of the upper secondary system since all federal schools 24. CPS outcomes supported by the Bank to improve now accept student transfers and validate curriculum Mexico’s competitiveness included:(a) strengthening and equivalencies, and in better student learning as evi- expanding the Government’s quality schools program; denced by improved ENLACE mathematics scores. By (b) greater support for improved coverage and quality of 2011, 100 percent of federal schools implemented the education in poor municipalities; (c) improving upper competence-based curriculum, well above the 50 per- secondary education; (d) equitably expanding tertiary cent CPS target for 2011. Supporting knowledge services education through student assistance; and (e) improving helped understand better the causes of upper secondary human skills, infrastructure, links between local and school dropout and recommended policy options for edu- global companies, and the financial, legal and regulatory cation services to the poorest. [The expected outcome framework for information technology (IT). was “achieved”.] Strengthening and Expanding the Equitable Expansion of Tertiary Education COUNTRY PARTNERSHIP Government’s Quality School Program Through Student Assistance STRATEGY FOR THE UNITED 25. The Bank provided support to improve the quality 28. Through a series of APLs23 on Tertiary Education MEXICAN of education as measured by coverage and social par- Student Assistance, the Bank successfully supported STATES ticipation, through a series of APLs21 for school-based the Government’s strategy to foster the sustainable, management. These projects aimed to improve the equitable, and efficient expansion of tertiary education 58 through the development of a coherent student assis- C. Thematic Area III: tance system consisting of grant programs and com- Promoting Social Inclusion pensatory interventions for disadvantaged students. The share of 18- to 24-year-old students in tertiary education from households classified at the two lowest 30. At the time of the CPS FY08-13 discussion, poverty quintiles of the income distribution increased from levels in Mexico had been declining since the crisis of (an adjusted baseline) 10 percent in 2004-05 to 20.6 the mid-1990s; this thematic area focused on long-term percent in 2011, surpassing the project target of 20 issues. Yet, the impact of the crisis in 2008 and the percent for 2011. IFC also successfully supported: (a) AH1N1 influenza epidemic changed the Bank’s approach Universidad Autónoma de Guadalajara (UAG) for the in responding to expeditious demands from the Govern- construction and renovation of its facilities; (b) work ment to protect the poor’s investment in human capital with Finem, the leading student loan institution; and and their consumption. Outcomes supported by the Bank (c) support to Edilar, a company that gives access to to promote social inclusion included: (a) increased capac- public school teachers to education-related products ities in health, nutrition and education of poor families and content, as well as to lending of resources for through human capital investment; (b) preservation and continuing education. IFC’s education projects have expansion of the Popular Health Insurance coverage of supported 29,000 students, of which 40 percent were poor and informal worker families; (c) improved access female. These projects also supported the creation to ECD services and learning outcomes of children in the of over 4,000 jobs. [The expected outcome was most marginalized municipalities; and (d) strengthening “achieved”.] the capacity of the health system to control epidemic waves. Improved Human Skills, Infrastructure, Links Between Local and Global Increase Capacities in Health, Nutrition, and Companies, Financing and Legal and Education of Poor Families Through Human Regulatory Framework for IT Capital Investment by Promoting Regular Health Check-ups, Improving Health Status, 29. As part of its engagement to improve competitive- and Raising School Enrollment and Attendance ness, the WBG supported improvements in the business environment, particularly among SMEs, and fostered 31. Bank assistance to increase health, nutrition, and the innovative capacity of the private sector, including education outcomes of poor families helped sustain the research and development, to enhance productivity and number of families and children participating in the economic growth. The World Bank’s Doing Business Oportunidades program. A loan and additional financing reports provided critical reform benchmarks within (AF) associated with this conditional cash transfer (CCT) Mexico, generating internal discussion and policy program contributed to achieving significant development reforms. Efforts to strengthen the innovative capacity results, with 5.8 million families participating in the of the private sector and increasing the integration of program as of December 2012 and another 3 million Mexico’s innovation system were supported by a DPL. more children participating in the program. The Bank Although the number of agreements to streamline also provided extensive technical and convening services public procurements procedures fell short of the DPL to address a series of second-generation issues for the target, the project was successful in mobilizing annual Oportunidades program to be supported in the next CPS, private investment in infrastructure. Eventually, the and contributed to increasing Mexico’s engagement in impact of the 2007 World Bank Country Procurement South-South knowledge exchanges with other developing Assessment Report (CPAR) helped Mexico modernize countries. As a result, Oportunidades received numerous its procurement systems by eliminating obsolete regu- delegations from other countries, most of which have lations and building in methods for transparency. The been organized by the Bank, where participants learned Bank has successfully provided support to improve of the design and implementation of social programs in human skills, infrastructure, links between local and Mexico and exchanged different perspectives on poverty global companies, and the financial, legal, and regu- alleviation programs. [The expected outcome was latory framework for IT with support of an APL24 on “achieved”.] Innovation for Competitiveness and an ongoing project on IT development (PROSOFT). As a result of these projects, the number of companies with technical Preserve and Expand the Popular Health COUNTRY capacity, quality standard certifications, and access to Insurance’s Coverage of Poor and Informal PARTNERSHIP new markets increased to 413 in 2012 (well above the Worker Families, and to Strengthen its STRATEGY FOR 390 target for 2014). Total private R&D also increased Financing and Affiliation Systems THE UNITED from 0.15 in 2004 to 0.17 percent in 2009 but below MEXICAN the 0.23 percent target (2009). [The outcome was 32. With support of the Social Protection System in STATES “partially achieved”.] Health Project, the Bank promoted access to healthcare 59 for the poor by increasing popular health insurance also supported the Government through an Avian and (PHI) coverage to virtually all intended beneficiaries. Human Influenza (AHIF) grant in the development of Knowledge activities provided policy options. Com- comprehensive risk communication strategies at the pared with 27 million PHI affiliates at the beginning local level in 9 states.28 The Bank helped in transfer- of the CPS period, now there are more than 52 million ring knowledge from the Mexican experience with the affiliates; virtually all intended beneficiaries of the AH1N1 epidemic, including pandemic preparedness PHI are covered. The Basic Health Care Project management, and in showcasing Mexico’s best prac- contributed to increase the number of health facilities tice to Asian countries. to guarantee the provision of services to affiliates who qualify for the subsidized regime of the PHI. The Bank 35. IFC strengthened its private health sector strat- also supported a Global Knowledge Exchange Activity egy through the financing of three projects: Centro on Health Financing, as well as several South-South Medico Puertas de Hierro in the construction of exchanges that allowed the Government to share its new hospitals in Guadalajara, Nayarit (frontier state), experience and learn from other health insurance and Colima, offering general primary, secondary, and coverage programs. [The expected outcome was tertiary health services. These hospitals have already “achieved”.] reached 492,000 patients, showing strong demand for their services. Additionally, in FY13 IFC supported the creation of a new greenfield hospital within the Improve Access to ECD Services and integrated medical complex in northern Monterrey Learning Outcomes of Children in the Most characterized by its growing low-and middle-income Marginalized Municipalities of Mexico population where demand for medical infrastruc- ture is growing quickly. This hospital is planning 33. With the support of the Compensatory Education to reach 27,000 patients. Lastly, IFC successfully Project, the Bank aimed to improve the access to structured and implemented a PPP solution for the ECD services through several innovative interven- design, construction, financing, and operation of tions. The number of children attending at least 80 two new regional secondary hospitals in Toluca and percent of ECD sessions grew by 30 percent between Tlalnepantla (both in Estado de Mexico). This was 2010 and 2013, and the number of parents attending the first PPP hospital in Mexico to include a payment these sessions increased from 38,620 in 2009 to mechanism incorporating deductions attached to con- 49,447 in 2012, exceeding the end of year target. tractually agreed-upon key performance indicators. Several knowledge products — with the support of This has resulted in these hospitals being considered grant funding — contributed to improve access to among the most efficient healthcare facilities in the ECD services.25 [The expected outcome was country. [The expected outcome was “partially “achieved”.] achieved”.] Strengthen the Capacity of the Mexican D. Thematic Area IV: Health System to Control Epidemic Waves Developing Infrastructure and 34. The Influenza and Prevention Control Loan was Assuring Energy Security and cancelled due to problems using planned retroactive Environmental Sustainability financing26 and a milder than expected AH1N1 epidemic. Nonetheless, the World Bank supported 36. Despite an appropriate level of service coverage a number of Government decisions and actions that in a wide variety of sectors— urban development, contributed to containing the epidemic. Despite transport, energy, water, environmental manage- the absence of Bank disbursements, the Ministry of ment — relative to the rest of Latin America, the Health made significant progress toward the original quality and reliability of these services in Mexico are loan-identified program development objectives: generally below what could be expected in an upper strengthening the capacity of the health system to mon- middle-income country.29 Outcomes supported by the itor the spread of influenza viruses; and controlling Bank to promote this area included: (a) enhancing epidemic waves. By December 2010, 24 percent of massive urban public transport; (b) use of clean devel- the population had been vaccinated against AH1N1, opment mechanisms to foster technology, regulatory, and the Government had purchased more than 2.1 and institutional changes; (c) improving the federal COUNTRY million units of antiviral medicines to replenish and housing system; (d) improving water supply and san- PARTNERSHIP STRATEGY FOR expand the country’s strategic reserves.27 As part of itation service provision; (e) providing environmental THE UNITED its ongoing collaboration with the health sector, the services; (f) integrating energy services in rural areas; MEXICAN World Bank also provided technical assistance that (g) contributing to low emissions in the energy sector; STATES contributed to strengthening the National System for (h) piloting renewable energy production; and (i) pro- Epidemiological Surveillance (SINAVE). The Bank moting adaptation to climate change. 60 Development of Urban Transport Evaluating Improve Federal Housing System to Alternative Solutions and Proposing Facilitate Access to Housing by Low- Frameworks for Private Sector Participation and Moderate- Income Families 37. The Government, together with the World Bank, 39. At the initial stages of the global financial crisis, the has been working to address public transport and air Government recognized the need to strengthen the Socie- pollution issues and their linkage to climate change. dad Hipotecaria Federal (SHF), a public sector institution Through a reimbursable advisory service (RAS), with the mandate to develop housing finance markets and the Bank advised on designing a federal program to facilitate access to housing by low- and moderate-income support the development of urban public transport families. The Bank supported the Government toward systems (i.e., PROTRAM). The Urban Transport the achievement of this outcome through the Affordable Transformation Project (UTTP) supports PROTRAM Housing and Urban Poverty Reduction DPL III (HUSAL) to transform urban transport in Mexican cities onto and the Private Housing Finance Markets Strengthening a lower-carbon growth path. The Sustainable Trans- Project. However, the expected gradual expansion of SHF port and Air Quality Program GEF grant, linked to products toward lower-income segments did not mate- the UTTP, assisted municipalities in reducing CO2 rialize because the agency’s focus shifted to mitigating emissions and supports policy changes to favor the mounting crisis of the housing sector in general. On larger investments in sustainable transport projects. the positive side, the Private Housing Finance Project The ongoing Insurgentes Bus Rapid Transit System successfully contributed to stabilizing the housing market Carbon Finance Project has contributed to reducing during the crisis by supporting government’s achievement airborne pollutants and GHG emissions generated of 1 million housing solutions per year in 2008-12 and by the transport sector in Mexico City. This corridor strong SHF support to the private sector. Complementing improved bus system energy efficiency by replacing the HUSAL, a three-year Technical Assistance Loan 368 old, small, and mid-size gasoline and gas — (HUTAL) supported technical aspects of the reforms mainly liquid petroleum gas — units with 105 artic- supported by the HUSAL. The HUSAL supported the ulated passenger diesel buses. Emissions reductions preparation and implementation of Mexico’s 2007-12 in the period Nov. 1, 2009, to Oct. 31, 2010 were National Housing Program, but was not fully effective in 50,180 tons CO 2 per year, of which modal change improving the complex institutional housing framework in were 38,790 tons. 30 [ The expected outcome was Mexico. “achieved” .] 40. IFC incorporated in its strategy the support to the housing sector based on the Government’s longstanding Catalytic Use of Clean Development agenda in promoting affordable housing. Before the 2008- Mechanism to Foster Technology, 09 crisis, IFC supported the demand side through equity Regulatory and Institutional Changes investments and debt financing in non-bank financial in- in the Public Transport Sector stitutions (Su Casita, Vertice, GMAC), which made loans to the low-income mortgage sector. From the supply side, 38. Among the actions seeking to improve the use of IFC supported large publicly listed homebuilders that clean development mechanisms and foster technologi- have the scale and capacity to provide the largest volumes cal and institutional changes in the energy and public of affordable housing in the industry. At the end of FY13, transport sectors, the Bank supported the Government IFC had a portfolio totaling US$175 million exposure (net with the Green Growth DPL in developing the regulato- of equity write downs) in the sector with Urbi, Homex, and ry, monitoring, and financial framework for lower GHG Alpha Geo. However, due to changes in government poli- emissions.31 In parallel to this DPL, other operations cy in 2012,32 the three largest homebuilders are currently aimed to develop the regulatory and business frame- experiencing a liquidity crisis and are in the process of work of the transport sector. The introduction of Climate restructuring. Nevertheless, the IFC portfolio includes Friendly Measures in Transport supported the design of projects with clients that, to date, have not been affected the BRT corridors in Mexico City (Metrobus) and the to the degree experienced by large homebuilders. [The creation of the institutional, regulatory, and business expected outcome was “partially achieved”.] framework for operating BRT systems in other Mexican cities. Metrobus has now become a more robust agency in technical terms and is mobilizing 800,000 pas- Tools and Instruments to Induce Local sengers per day. The ‘Insurgentes Bus Rapid Transit Authorities to Improve Financial Sustainability COUNTRY System Carbon Finance’ project has also contributed and Efficiency of Water Supply and Sanitation PARTNERSHIP to improve bus productivity by serving more passen- Service Provision in their Jurisdiction STRATEGY FOR gers with lesser number of units and increase modal THE UNITED share of large buses. [The expected outcome was 41. The Government is promoting significant in- MEXICAN “achieved”.] vestments in water to address an acute water crisis STATES due to accelerated population growth and suboptimal 61 management of water resources. The Modernization of increase the use of renewable energy sources. During the the Water and Sanitation Sector TA (PATME) supported ENVDPL III, the Bank also provided technical assistance the documentation and dissemination of successful water to revise and update the Mexican Forest Fund. By the models in 10 water utilities participating in this program. end of 2009, 15 million ha. of forest under sustainable Manuals developed by CONAGUA were distributed to forest management operations were financed by this fund. water utilities and water and sanitation sector institutions IFC also made a US$10 million investment in Optima beyond the realm of PATME. A satisfactory degree of Energia, an energy services company, to undertake ener- improvement was observed in operational and financial gy savings projects for six hotels in Mexico. This project performance of water utilities that were part of the will build the market for energy service companies and PATME. Through the successful rehabilitation and mod- set a new standard for energy efficiency in the country’s ernization of irrigation infrastructure and the adoption hotel sector. By project completion, Optima Energia could of improved farm irrigation and application systems, the reduce GHG emissions by 7.3 tons of CO2 equivalent per Integrated Irrigation and Modernization Project, together year. with several knowledge activities and convening services on reducing overexploitation of aquifers, significantly 44. The Bank also supported the conservation and improved water use efficiency and generated replicable sustainable use of biodiversity, with projects like the Me- models. In an effort to support selected Mexican states soamerican Corridor GEF grant, aimed at mainstreaming to improve their provision of water supply and sanitation, biodiversity criteria in public expenditure and supporting the Bank in addition worked with the State of Guanajuato private efforts to achieve reduced deforestation and in the implementation of the Decentralized Infrastructure improved management of natural resources and biodiver- Development Loan, which expanded access to water and sity conservation in six biological corridors in southeast sanitation services. A Water Sector DPL had a significant Mexico. The National System of Protected Natural Areas institutional impact, including the approval of a new Cli- (SINAP) was also supported by the GEF and the Bank mate Change Law, greater focus on climate change in the through several grants. [The expected outcome was framework of water planning instruments and programs at “achieved”.] the federal level, and strengthening CONAGUA institu- tional framework and monitoring capacity. Increase Access to Efficient and Sustainable 42. IFC provided capacity advisory support to the Integrated Energy Services in—Predominantly municipal water company (OPDM) during the design Indigenous—Rural Areas of Mexico and implementation of a wastewater recycling plant in the municipality of Tlalnepantla. Additionally, in 2010 45. In order to increase access to efficient and sustainable IFC invested in Water Capital, a leasing company that integrated energy services in predominantly indigenous ru- provides energy efficiency, renewable energy, and supply- ral areas of Mexico, the Bank supported the Government’s and demand-side water management solutions tailored Rural Electrification Program through a combination of to the specific needs of its customers. [The expected investment operations and grants from the GEF. Neverthe- outcome was “achieved”.] less, both the Integrated Energy Services Project and the Solar Thermal Project, (i.e., Agua Prieta II) showed limited progress (and are still ongoing) due to a combination of Provision of Environmental Services of complex procurement processes and project implementa- National and Global Significance and tion difficulties. [The expected outcome was “partially Secure Long-Term Sustainability achieved”.] 43. During this CPS period, the Bank supported the Government in its efforts to promote sustainable produc- Regulatory, Monitoring and Financial tion and consumption, prevent environment degradation, Framework for Low Emissions Evolution of and ensure long-term development opportunities. With the Transport and Energy Sectors Developed the support of the Environmental Services Project and a GEF grant, the Bank aimed to enhance the provision of 46. The Efficient Lighting and Appliances Project pro- significant environmental services and secure long-term moted Mexico’s efficient use of energy and the mitigation sustainability. The project had an important impact of climate change by increasing the use of energy-efficient in increasing hydrological, biodiversity conservation, technologies at the residential level. The project success- and hectares under contract; and carbon sequestration fully promoted the development of a sustainable market COUNTRY services. A series of Environmental DPLs supported for energy-efficiency equipment among the large and PARTNERSHIP STRATEGY FOR environmental sustainability measures in the energy, fast-growing energy end-use sectors for lighting, refriger- THE UNITED water, tourism, and forestry sectors. They helped support ation, and air conditioning. Specifically, less consumption MEXICAN congressional approval of the Energy Sector Reform of electricity favored the environment, as an emission STATES package that included two key pieces of legislation: a of about 865,000 tons of CO2 was avoided with the 22.9 law to promote the efficient use of energy and a law to million light bulbs that were changed during 2012. 62 47. Also, as part of the Bank’s support in the agriculture considered on the CPSPR Results Matrix — that captures area, the ongoing Sustainable Rural Development Project the Bank’s engagement with the Government on the pro- seeks to contribute to the goals of the National Strategy motion of adaptation to climate change. on Climate Change by reducing GHG emissions through the adoption of emission-reduction technologies. By the 51. The Climate Change DPL was the first operation end of 2012, 770 small and medium-size agri-businesses processed under this new assistance modality for adopted environmental sustainable technologies resulting Mexico proposed under the FY08-13 CPS. The en- in 600,000 tons of CO2 equivalent avoided (close to the gagement and packaging model tailored knowledge and CPS original target of 919 SMEs and 770,000 tons of CO2 convening services around a series of annual DPLs that equivalent for 2013). A Policy and Human Resources successfully supported the Government’s effort under Development (PHRD) grant helped improve the Ministry its National Climate Change Strategy to mainstream cli- of Environment’s capacity to promote the use of clean mate change consideration in public policy. Moreover, agro-environmentally friendly practices among producers. a Low Carbon DPL in FY10 and a Social Resilience to Climate Change DPL in FY12 supported Mexico’s 48. IFC, through its Sustainable Business Advisory climate change agenda, including advisory support for (SBA) has worked with companies to adopt environmental, adaptation in low-income and vulnerable populations, social, and governance best practice, as well as cleaner while committing to reduce GHG emissions.34 Fur- technologies that create a competitive edge. Additionally ther analysis on the social impacts of climate change several IFC investments have been focused on energy included a report that identified the key drivers of efficiency projects (e.g., Calindra, the country’s main lime socio-spatial differences in resilience and vulnerability producer) improved environmental footprint with the use to climate change in Mexico. At the subnational level, of forest biomass as an alternate fuel source. By project the broad range of Bank products, including grants, completion, Calindra is expected to reduce GHG emis- knowledge, and convening services, was coordinated sions by 97,000 tons of CO2 equivalent per year. [The through an ongoing Subnational Climate Change MoU expected outcome was “partially achieved”.] that provided technical assistance to five states in the preparation of their climate change plans. Moreover, the GEF on Adaptation of Climate Change Impacts on the Reduce GHG (CO2) Emission Through the Coastal Wetlands in the Gulf of Mexico also contributed Adoption of Emission-Reduction Technologies to promote climate change adaptation. 49. The Bank is supporting two wind projects in Mexico: 52. As part of the CPS flexible design, in partnership Carbon Fund-financed La Venta II and the GEF-financed with PREM, Treasury, and the Disaster Risk Financing La Venta III. La Venta II entered into commercial opera- and Insurance Program, the Bank also supported the tion in 2007. After facing many hurdles, La Venta III (i.e., integration of disaster risk within Mexico’s broader fiscal the wind power large-scale renewable energy development risk management strategy. The Bank worked in part- project) started operations in October 2012 and has paved nership with Mexico on the first and second multi-peril the way for the development of wind energy in Mexico catastrophe bond (MultiCat bond) and had an active since it was the first project of its kind to be launched engagement in mainstreaming prevention and risk re- under the Independent Power Producer Scheme. Today duction strategies, as well as promoting disaster and risk more than 1,300 megawatts capacity of wind power ener- financing and insurance activities. [The outcome was gy are in operation with decreased prices of wind energy. “achieved” and exceeded.] In 2010 and 2011, IFC financed the first two private wind power projects in the Isthmus of Tehuantepec (Oaxaca). IFC advisory services have helped the Mexican Wind E. Thematic Area V: Energy Association (AMDEE) and the Ministry of Energy Strengthening Institutions formulate a strategy to promote the development of the wind energy sector.33 [The expected outcome was ‘achieved”.] 53. Institutional strengthening was a critical cross-cut- ting theme in Bank support in most sectors. CPS outcomes supported included: (a) providing the public with infor- Promoting Adaptation to Climate Change mation on the efficiency and effectiveness of government organizations and program expenditures; (b) improving 50. During the CPS period, Mexico demonstrated a strong the administration in selected municipal governments; COUNTRY commitment to address the challenges of climate change (c) improving customs processes and efficiency; (d) PARTNERSHIP through concrete actions in the areas of institutionalizing strengthening of fiscal transparency, governance, and STRATEGY FOR the agenda, adopting related policy incentives, and de- accountability; (e) supporting judiciaries institutional THE UNITED signing national strategies and programs that placed cli- performance; (f) improving capacity building and commu- MEXICAN mate change at the heart of the country’s NDP. As a result, nication practices, and (g) strengthening and modernizing STATES this CPSCR reports a separate outcome — not originally treasury management. 63 Selected Federal Departments and Agencies Strengthened Fiscal Transparency, Provide Decision Makers and the Public with Governance, and Accountability Rigorous, Timely, User-Friendly Information on the Efficiency and Effectiveness of Government 57. The Bank supported fiscal transparency, governance, Organizations and Program Expenditures and accountability by measuring the satisfaction of Congress and civil society with performance information 54. Although the World Bank supported the develop- available via a dedicated government website. Through ment of performance information indicators through a the support of the Results Based Management project, combination of financial and knowledge instruments, an active network and portal is now available for citizens government demand for the ongoing Results-Based since December 2012. The Institutional Strengthening of Management and Budgeting Project changed, resulting Congress IDF grants I and II supported the development in a partial cancellation and a reduction of the project’s and implementation of an integrated information manage- scope. Nonetheless, the project has helped strengthen ment system to be used by Congress staff and members. the capacity of the Ministry of Finance (SHCP) to However, the creation of the monitoring and evaluation use standardized performance information of priority system for Congressional performance and technical staff public programs during budget preparation. The Bank, was not accomplished for lack of internal buy-in given however, continued to provide support to different se- changes of management. [The expected outcome was lected federal entities and departments in the review and “partially achieved”.] strengthening of their M&E system strategy, as well as capacity-building activities in other public accounting and oversight institutions. [The outcome was partial- Support the Improvement of Institutional ly “achieved”.] Performance of Judiciaries 58. Through the Judicial Modernization Project, the Bank Improved Administration in Selected helped implement a new ICT network that provided timely Municipal Governments information on demand and supply of justice services in the courts of the Federal District Government which was 55. With support of an IDF grant for the Creation of a the only subnational jurisdiction that signaled its interest Municipal Management Public Observatory, the Bank to access the existing credit line, as other states were contributed to institutional building, strengthening of reluctant to participate given the lack of coordination social accountability, and administration improvement between the state governments and judiciaries. The new in selected municipal governments. This was achieved network has increased the information available. As of through the creation of an online platform, currently 2010, annual statistics reports have been published and under operation, which provides a virtual space to disseminated. There is also an online bulletin providing exchange good practice and other valuable knowledge. the status and location of cases in courts. However, only 5 With the use of this public website, areas where local applications were uploaded to the ICT institutional plat- governments could improve have been identified, form from the 10 targeted by the completion of the project. which has resulted in the development of improved [The expected outcome was “partially achieved”]. trainings for local public servants. [The outcome was “achieved”.] Improved Capacity Building and Communication Practices Improved Efficiency of Customs Processes 59. By strengthening the institutional capacities of 56. The Bank supported the Government in improving diverse federal and state agencies, the Bank helped the efficiency in customs processes through the Customs improve the availability of information through the im- Institutional Strengthening Project. This operation aimed plementation of different grants and knowledge services. to reduce transaction costs, customs clearance time, and The IDF grant to support Federal Institute for Access a total redesign of processes, among others. The project, to Information (IFAI) in the adoption of the electronic approved in 2009, was cancelled 3 years later following access to information system (INFOMEX) was successful the request of the Government due to the lack of optimal in expanding and making operational this system to all conditions to implement this project by the executing 31 states and to several autonomous entities that were agency (SAT). [The development outcome was “not not initially considered. The National Agrarian Registry COUNTRY achieved”.] (RAN) was also supported by the Bank through the Ca- PARTNERSHIP STRATEGY FOR dastral Information system IDF. Within the scope of this THE UNITED grant, it was possible to strengthen RAN’s capacity to link MEXICAN geographical and legal information and develop a sound STATES technological platform to integrate and analyze data. [The expected outcome was “achieved”]. 64 IV. WORLD BANK GROUP global economic downturn as well as the food crisis and the influenza pandemic. The Bank was able to rapidly PERFORMANCE align its strategy to the Government’s 10 Point Program, which highlighted the countries immediate priorities 60. To fulfill the challenging needs and demands of a under the NDP at the time of the crisis. During this complex middle-income country like Mexico, the Bank crisis period, the Bank also effectively responded by successfully developed a thematic engagement model reducing its average time of preparation for DPLs to to improve selectivity, effectiveness, and efficiency in 5 months in comparison to the 18 months experienced delivery in the context of limited IBRD capital. This during the past CPS. The CPS was able to identify all model reflects the transition to a more strategic and critical risks and mitigation measures following the integrated client engagement that seeks to maximize global crisis. None of them affected the implementation the impact of the package of services (financial, of the country’s portfolio. The CPS Results Matrix was knowledge, and convening services) offered by the updated during the CPSPR and then again with this WBG. Following the flexible design of the CPS, the CPSCR in order to include outcomes that were not model also accounts for the WBG’s ability to respond originally considered. Most outcome indicators were to client needs at federal and subnational levels. Based relevant for ongoing CPS objective; and where new or on the success of the thematic model in the design better indicators were available (in four cases), they and implementation of a flexible country strategy, the were used in the assessment. The CPSPR also mapped performance of the World Bank at implementing the IFC’s strategic realignment to support the gradual CPS FY08-13 has been rated as “satisfactory”. This recuperation of the economy by strengthening the fi- rating focuses on two key dimensions: (a) the design nancial sector, supporting investment in infrastructure of the strategy and (b) the implementation of the CPS and climate change, and helping competitive industries program. with a special focus on sectors with importance for employment generation such as SMEs. It maintained IFC’s pro-active portfolio management, while showing A. CPS Design and Relevance selectivity in its approach to new business to ensure high additionality and development impact. 61. The design of the original strategy was based on support on five engagement principles. The five coun- 63. A rolling business plan where all WBG finan- try engagement principles are: (a) competitive IBRD cial, knowledge, and convening products and pack- pricing with a base-level borrowing of US$800 million ages were accounted for in real time (at entry and per year; (b) flexibility in delivering emerging financial exit) helped in maintaining program monitoring services and on-time knowledge products; (c) selectivity and a degree of selectivity. The constant monitoring in areas of support by focusing on areas of comparative of the business plan confirmed the effective selection of advantage and exiting programs with lack of demand areas of engagement and instruments, and helped assess or operational rigidities; (d) fast response in meeting the realism of the expected outcomes and the quality of the Government’s changing demands with tailored the results framework. Business plans were also used development solutions; and (e) enhanced coordination to communicate World Bank program engagement with within the WBG. These principles of engagement were central and sector ministries, development partners, and the result of client feedback and the Mexican author- the media. ities’ desire to maintain a strong relationship with the Bank. To implement these principles and enhance its delivery of knowledge services, the Bank proposed back B. Implementing the Strategy in 2008 to base its support on a streamline approach. This approach anchored most lending in a large annual 64. The Bank has been highly successful in mobi- DPL supporting Government’s national development lizing resources and leveraging co-financing of other priorities, accompanied by an enhanced package of organizations and donors to enhance the effectiveness non-lending services. of the overall support provided to the country. The Bank has focused its efforts in developing partner- 62. The implementation of these country en- ships and financing packages in areas of common in- gagement principles confirmed the relevance terest, particularly with other financial international of the strategy and its alignment with Mexico’s institutions (e.g., IMF, IADB), civil society (e.g., development priorities; yet, the flexibility of Transparency International), bilaterals (e.g., Agence COUNTRY the design made possible a timely and effective Française de Développement, AFD), the private sec- PARTNERSHIP response by WBG to the changing needs of the tor/foundations, and the financial markets. One rel- STRATEGY FOR country given the deteriorating international evant example is co-financing of the Oportunidades THE UNITED economic environment. The strategy took into program with the IADB. IFC also mobilized US$790 MEXICAN account the need to adjust the program to Mexico’s million from other private sector partners in the CPS STATES changing circumstances and priorities as a result of the period. 65 65. The results-based thematic engagement to complex development solutions. Mexico is among the approach implemented during the CPS period, largest RAS users in the Bank. particularly in regard to human capital mobiliza- tion, was highly effective in keeping strong client 68. The implementation of the program entailed dialogue and business relations with the private and close supervision and periodic reviews of the public sectors in critical areas where the WBG had portfolio both at the project and country level. comparative advantages and was also learning from To tackle implementation issues, several CPPRs were Mexico’s experience. In particular, the business model held with the active participation of the Government of having sector leaders in large country offices was highly and the Bank’s team. At the CPPRs, projects at risk of effective; these sector leaders are technically and oper- not achieving their development objectives and projects ationally strong to provide inputs to sector management with slow disbursements were at the center of CMU and and capture knowledge as programs are implemented. sector quality reviews. As a result of these discussions, Decentralized sector leaders are able to develop coor- action plans were agreed with government counterparts, dination focal points and integrate sector agendas with including restructurings and partial cancellations, and sector ministries, country partners, and stakeholders, strong monitoring and follow-through have ensured a while representing sector business planning with country healthy loan portfolio in the context of complex opera- management units. tional engagements in the energy and transport sectors. In addition to CPPRs, the CMU provided to government 66. Financial services took on an increasingly im- counterparts — through the Business Plan — with regu- portant role not only in crisis response but also in lar updates of its list of activities that classified all WBG advancing Mexico’s leading role in the use of inno- activities by theme and type of instrument. This helped vative financial solutions. At the federal level, Mexico government to coordinate joint portfolio improvement took advantage of the embedded flexibility of IBRD loans efforts. Mexico’s fiduciary and safeguards framework is to fix the interest rates on their loans. The Government strong, and the Bank is adopting more frequently Mex- also signed a master derivatives agreement with the Bank, ico’s country systems in the implementation of its own enabling them to use IBRD hedging products to manage projects. Harmonization of fiduciary procedures among market risk of their overall debt portfolio. Moreover, the other multilaterals and the supreme audit institution, implementation of customized solutions provided compet- through a memorandum of understanding, contributed to itive funding for subnational entities, allowing the Bank streamlined financial reporting. to continue its developmental work with these entities. IFC also committed US$580 million to Mexico’s financial 69. A new communication strategy was successfully sector, with volumes increasing in the latter part of the implemented to promote a new narrative around period. development impact of thematic multi-year engage- ments. First, opportunities were identified and prioritized 67. Moving forward after the crisis, the Bank to showcase the tailored suite of WBG services: adopted a results-based thematic engagement ap- proach seeking to maximize the impact of Bank’s a. A new corporate narrative was used by support in a complex middle-income country. senior management (e.g., in presentations, The Bank implemented results-based programmatic papers, OpEds) and in communication out- knowledge services together with reimbursable advisory reach (e.g., public presentations, brochures, services (RAS). This model results in an emphasis websites). on the synergies and linkages between the various activities that help achieve strategic objectives relat- b. Reputational risk management systems ed to the theme, and not just on a set of stand-alone were established through social media deliverables unconnected to each other. The activities monitoring. and the associated results framework cover a two- to three-year time horizon. Dissemination and client c. Regional and corporate advocacy cam- feedback are an inherent part of this instrument now paigns were implemented (e.g., World known as “programmatic approach”. At the same time, Development Report, LCR Flagship Middle IFC advisory services had 24 active knowledge projects Class, #whatwillittake campaign). in Mexico across several business lines with 72 percent of them closing in the period rated successful or higher. Second, internal and external knowledge sharing Following client’s needs, the Bank also provided RAS was promoted (e.g., participation in Mexico book COUNTRY products more strategically and packaged these services fairs in 3 major cities – Monterrey, Guadalajara, and PARTNERSHIP STRATEGY FOR within the overall CPS knowledge agenda. Since 2008, Mexico City – reaching more than 10,000 visitors). THE UNITED there has been a steady demand of the provision of RAS Finally, a web and online social media strategy was MEXICAN to the Government (three per year on average), which is implemented and key partnerships were developed and STATES indicative of the client’s appreciation for the breadth and consolidated. For example, between 2012 and 2013, depth of international experience that the Bank brings there was an impressive increase in the number of 66 web-based stories and public presentations displaying to 4.1 years in FY13 with the extension of several energy multi-year development solutions. During FY12, the and GEF projects. Since 2008, IEG has evaluated 22 number of web-based stores was almost zero (2 per projects of which 64 percent have been rated between year). By the third quarter of FY13, 114 stories and “satisfactory” and “moderately satisfactory”. Regarding public presentations were produced. The procurement quality at entry, 50 percent of these 22 projects were reform results story, for instance, was published in the rated between “moderately satisfactory” and “highly Bank’s results story compendium and won a Regional satisfactory”, while 77 percent were rated in this same award. range for quality at supervision. Average of projects at risk has remained in 4 projects per year and involved 70. Mexico continues to be among the Bank’s complex innovative energy projects with procurement largest borrowers. The country is currently the largest issues that needed to be restructured. Efforts to further IBRD borrower with US$14.78 billion outstanding debt increase implementation have focused on the gradual as of September 30, 2013, representing some 10 percent adoption of country systems. of the IBRD total portfolio. As of June 30, 2013, the active portfolio consisted of 13 IBRD projects and 5 full 71. In FY13, IFC committed portfolio in Mexico reached GEF operations for a net commitment of US$4,557.8 mil- US$1,584 million, of which US$940 million is outstand- lion of which 34 percent remained undisbursed (Table ing (disbursed) (Table 3). The portfolio consists of 54 2). The number of projects under implementation has different clients in more than 14 industries. Disbursement remained in the range of 18-23 operations throughout the rates have increased in the past two fiscal years above CPS period. The average age of IBRD projects dropped the FY08-11 average, reaching US$902 million in FY13. from 4 years in FY08 to 3 years in FY12, but increased Development outcome scores of Mexico’s portfolio are ••ANNEX 2 TABLE 2. IBRD Portfolio Performance, FY08-13 Variable FY08 FY09 FY10 FY11 FY12 FY13 Number of Projects 19 20 23 22 23 18 Net Commitments (US$ M) 2,165.8 3,949.0 6,908.4 7,637.6 7,775.5 4,557.8 Number of Problem Projects 3 5 3 3 2 7 % Problem Projects 16% 25% 13% 14% 9% 39% % Net Commit at Risk 7% 9% 8% 4% 1% 8% % Proactivity 50% 67% 100% 67% 33% 100% % Realism Index 79% 100% 83% 55% 28% 100% Tot Undisbursed Balance (US$ M) 1,158.3 2,102.6 3,802.6 3,641.0 3,201.1 1,579.0 Disbursement Ratio (Investment Only) 43% 214% 80% 49% 31% 46% Data includes GEF operations ••ANNEX 2 TABLE 3. IFC Portfolio, FY08-13 IFC Variable FY08 FY09 FY10 FY11 FY12 FY13 Number of Projects 9 12 11 14 14 14 Commitments 149 84 338 188 369 1,346 Mobilization     207 144   440 Own account + Mob 149 84 545 331 369 1,786 Portfolio (net commitments) 1,000 781 1,075 1,003 1,188 1,584 COUNTRY PARTNERSHIP Outstanding Portfolio (exposure) 693 611 759 791 955 940 STRATEGY FOR THE UNITED DOTS Development Outcome (% successful)* 60% 60% 57% 47% 67% 81% MEXICAN *housing sector not included STATES 67 also improving: although the percentage of projects rated 75. Continued support of Mexico’s role as a global successful in the CPS period is below the IFC average; knowledge leader. As an innovative middle-income FY13 results were rated 81 percent successful or higher. country, Mexico has increased its engagement in learning For IFC as a whole, Mexico ranks number 7 of the 138 with other developing countries across a wide variety of countries representing 3 percent of IFC total portfolio as subject areas. During the previous CPS period, Mexico of end-June 2013. engaged in approximately 33 knowledge exchanges, and the country is widely recognized as a global player on envi- ronmental sustainability and a pioneer among developing countries in climate change policy and negotiations. The V. LESSONS LEARNED WBG should thus continue supporting the Government in exchanging knowledge with other countries. There is a AND RECOMMENDATIONS strong potential for global knowledge brokering with the Bank as the global connector. 72. The FY08-13 CPS was designed to be flexible 76. Exposure limits. With the Government being so and innovative in responding to Mexico’s develop- close to the single borrower limit, it is advisable to agree ment needs. This flexibility allowed the Bank to respond with our counterparts on a very selective package of finan- expeditiously to the Government’s requests when the glob- cial, knowledge and convening services with customized al economic downturn hit the country. The implementation results-focused development solutions in areas where the of Mexico’s past country strategies reflect a transition to a Bank can provide value added. In this context, it would more strategic and integrated client engagement maximiz- also be important for the WBG to continue with its efforts ing the package of services offered by the WBG. The CPS in leveraging resources from the WBG and other devel- was able to improve alignment, operational efficiency, and opment partners in support of the Government’s program. impact through the use of more focused interventions and programmatic knowledge approaches, greater wholesaling 77. Bank-IFC-MIGA cooperation. Bank-IFC coop- resource and budget mobilization, real-time learning and eration on specific areas around their core competencies adaptation, and exit of program areas where value added, should improve effectiveness. Strategic coordination in comparative advantage, and impact was no longer aligned the implementation of complementary interventions by with the evolving program. the Bank and IFC is critical in achieving common goals in areas such as improving competitiveness and business 73. Results framework and flexibility. At the time of climate, access to financial markets, and infrastructure the progress report the results framework was adjusted to development activities. MIGA engagement with Mexico reflect the more selective approach that was adopted in is emerging, and IBRD and IFC would work closely to the meantime and to identify improved quantitative indi- support MIGA’s successful in-country transition. cators. Corporate requirements at the time asked for only one progress report, leaving little flexibility for additional 78. Lending instruments. During crisis periods, the adjustments. Therefore, when for example the climate use of the additional financing instrument proved simpler, change agenda emerged in the strategic agenda with the faster, and more cost-effective for the borrower, compared client, it could only be included as a separate outcome at to other lending tools. Budget support loans (DPLs) can the time of this completion report. The changed corporate pave the way for many other Bank-financed operations; guidelines for CAS products now allow more flexibility to and in turn, those operations enrich the dialogue to devel- adjust the program at several points during implementa- op further sequenced DPLs. Also, during the economic tion, and the next CPS should take advantage of it. crisis, DPLs proved to be effective tools in sustaining progress and protecting long-term reform agendas in the 74. Working with subnational clients. A MoU with face of negative external shocks. Multi-sector SWAP op- the State of Oaxaca proved to be a successful strategy to erations may not be practical in the Mexico context since support the poorest states or regions of Mexico. The MoU they require significant effort to design and supervise and itself is not designed to be restrictive, with the nature of potentially dilute the Bank’s ability to provide just-in-time objectives, instruments included, and level of formality policy advice and technical assistance. dependent upon the level of depth of engagement. The MoU has also served to deepen dialogue, monitor im- 79. GAC. Although anti-corruption measures aim to plementation, and assess impact within the framework limit exposure to fraud and corruption risks in MIC of a programmatic engagement. Hence, the Bank shall countries with strong fiduciary frameworks, these same COUNTRY continue to close the knowledge gap by working at the measures limit the flexibility to quickly prepare and PARTNERSHIP STRATEGY FOR subnational level to support poor states in Mexico fol- disburse operations. Particularly in emergency situations, THE UNITED lowing the experience thus far in supporting the State of there is room for further work to find balance in the way MEXICAN Oaxaca Annex 3 contains a short summary of the Oaxaca the Bank engages on corruption issues. STATES MOU and result of the partnership. 80. Knowledge services. Trust fund resources were 68 indispensable for providing technical assistance to ad- vance the government reform program and to strengthen coordination among key stakeholders. In addition, grant resources were very important to finance aspects of studies that may be overlooked, especially in areas of en- vironmental and social concerns. Reimbursable advisory services can be a powerful instrument, but the Bank could avoid over specifying procedures. The Bank is working to have one negotiated standard reimbursable contract, which should facilitate negotiations. Programmatic approaches proved to be remarkable instruments in the focalization and prioritization of Bank’s interventions in Mexico. In general, further dissemination is required to spread the findings of several Bank studies to the local level. This is very important since many issues to be solved require changes at the subnational level. COUNTRY PARTNERSHIP STRATEGY FOR THE UNITED MEXICAN STATES 69 COUNTRY PARTNERSHIP STRATEGY FOR 70 THE UNITED MEXICAN STATES ••CPSCR ANNEX 1. Summary of CPS Program Self-evaluation CPS Outcome/Cluster of Outcomes Status and Evaluation Summary WBG Activities that contributed to the Outcome Lessons and Suggestions for the new CPS and Outcome Indicators Thematic Area I: Accelerating Growth 1. Countercyclical fiscal policies during Partially Achieved. Financial: Budget support loans provide timely and successful financial assistance 2009 while adopting measures to enhance Despite the crisis, non-oil tax income increased from 9.9 percent of GDP in 2008 FY10: Economic Policies in Response to the Global Crisis to the Government but impact can be limited by constrains. medium-term fiscal sustainability for to 10.0 percent in 2010 (less than the 10.3 percent expected in the DPL). Development Policy Loan (P118070) CD: 31-Dec-2010 The interests and political strengths of stakeholders and groups 2010 and beyond, including an increase in the reform process may help tailor successful reforms in non-oil tax revenue and improvements As part of the reform process supported by the Bank, an originally proposed 2 percent Knowledge: and provide realistic expectations of reform outcomes. to public expenditure mgmt. consumption tax was substituted by a 1 percent increase in the general VAT rate. Minor FY12: PSIA - Poverty & Social Impact Analysis MDTF (TF097880) Important pending issues remain in terms of the fiscal sustainability and modifications were also introduced to the proposal for the enhancement of the income FY13: Fiscal Federalism Study (TF099048) distributional equity of the Mexican fiscal system. Research regarding Indicator: Non-oil tax revenue as a percent tax regime, while an excise tax on beer increase and the newly introduced excise tax FY13: Fiscal Management -child PKS (P129942) the impact of further reforms is likely to be demanded in the future. of GDP would increase to 10.3 percent in on telecommunications were adjusted downward. These modifications contributed to 2010 (Baseline 10.0 percent, 2008). moderating the increase in non-oil tax revenue as a percent of GDP from 9.5 percent in 2009 to 10.0 percent in 2010, instead of the 10.8 percent under the administration’s Baseline (2008): 10% initial proposal. Despite a more modest outcome, the non-oil tax revenue continued Target (2010): 10.3% to increase from an average of 8.7 percent of GDP during the previous administration Actual (2013): 9.9% (expected) (2001-2006) to 9.5 percent during the first half of the 2007-2012 administration. (2014):10.3% (expected) Although non-oil tax revenue is expected to be 10.0 percent in 2013, and decline thereafter based on the Mexico 2012 IMF Article IV Consultation (released in November 2012), a fiscal reform is expected to be approved on October 31st, 2013. The positive changes of this reform are expected to be included in the Mexico 2013 IMF Article IV Consultation (to be released in November 2013). As a result of a fiscal reform that was approved on October 31, 2013, the Mexican Ministry of Finance expects to raise non-oil tax income from 9.9 percent in 2013 to 10.3 percent in 2014 (source Criterios Generales de Política Económica 2014). As part of the reform process supported by the Bank, it is important to notice that programmable spending increased from 18.2 percent of GDP in 2008 to 19.9 percent in 2010 (more than the 18.7 percent anticipated in the DPL, but down from 20.5 percent observed in 2009, partly explained by the strong recovery in 2010); and the public sector borrowing requirements increased from 1.6 percent of GDP in 2008 to 3.4 percent in 2010 (slightly more than the 3.1 percent expected in the DPL). A program of knowledge services built on the reform agenda of the DPL. A PKS in Fiscal Mgmt. was successful in informing policymakers of the fiscal pressures Mexico could face, contributing to the dialogue between the Bank and the gov’t on the fiscal reform. CPS Outcome/Cluster of Outcomes Status and Evaluation Summary WBG Activities that contributed to the Outcome Lessons and Suggestions for the new CPS and Outcome Indicators 2. Implementation of regulatory reforms Achieved and Exceeded. Financial: The Bank can help assist with the construction of indicators and to foster financial sector access, Bank interventions supported medium-term financial institutions building activities. A FY03-FY11: Savings and Credit Sector Strengthening and Rural monitor policy impact to provide an informed basis to adjust policies consumer protection and stability. package of ongoing financial and technical operations with BANSEFI contributed to provide Microfinance Capacity Building (P070108) + AF; CD: 28-Feb-2011+ Grant: to enhance development outcomes, particularly in fiscal areas. access to financial services to more than 600,000 low-income families in marginal areas. Strategy for Access to Financial Services in Mx Rural Areas (TF098983) A technical assistance effort focused on sector entity Indicator: Number of total outlets to increase In rural areas the number of outlets offering financial services rose nearly threefold to FY04: Mexico Savings & Rural Finance (BANSEFI) Project - Phase improvement needs to be a medium-to-long term initiative, by 35 percent (Baseline 2008: 10,354); measured 1.45 per 10,000 adults. For Mexico as a whole the number of outlets providing financial II (P087152) AD:29-June-2004; CD:31-Jul-2012 ranging between 4-6 years, for it to produce solid institutions. down-market lending by development banks services increased to 20,287 from 10,354 in 2008. Crisis support included (i) a crisis FY08-FY12: Alta Growth Fund - Private Equity Fund (IFC) Government should allow for a longer lead time for the entities to simulation exercise that achieved all its objectives; (ii) several grants for assessing the FY08-FY13: Agrofinanzas - Farmers lending (IFC 26206) get certified and encompassed under a regulatory framework. Baseline (2008): 10,354 poverty and distributional impacts of the financial crisis also were very successful. FY09: Mexico Global Cat Mutual Bond Risk Mod (P111257) A technology platform is crucial to bring the sector entities together Target (2010): 35% increase FY09-FY13: Progresemos-Microfinance (IFC 26338) - as an inter-connected network of rural financial intermediaries. Actual (2010): 20,287 (96% increase) IFC supported the financial sector on enhancing competitiveness and promoting investments FY10: Banorte-Commercial banking (IFC 28213) In order to reach low-income households, where literacy rates in new areas for private sector participation. IFC worked together with (i) SHF in developing FY10: Finterra - SME Banking, Agribusiness Finance (IFC 575848) are low and functional literacy is practically nonexistent, efforts HF products aimed at lower income households; (ii) worked together with Progresemos to FY10: Microcred -Microfinance (IFC 547865) need to be made in the area of social intermediation. develop local capacity in efficiently servicing microloans in frontier regions of Mexico, through FY11: Compartamos- Micro credits to women (IFC 29634) Where the sector consists of a large number of initially a US$3.7 million loan and US$1.3 million advisory services project plus a $0.6 million invest- FY11: Alta Ventures - Private Equity Fund poorly performing entities, which most likely need to be merged or ment in Compartamos (after its exit as shareholder, IFC also extended a US$17 million loan FY11: Strengthening the Business Environment for liquidated, the political ramifications emanating from liquidation in 2011 and provided assistance in implementing a development center for hurricane victims Enhanced Economic Growth DPL (P112264) could easily jeopardize the sector consolidation process. as a relief response to natural disasters in Chiapas); (iii) provided support to Microcred; and FY12: Savings and Credit Sector Consolidation and Financial For projects that overlap over time and have similar objectives, they (iv) supported SME Finance/Agribusiness investments in Finterra with a complete package of Inclusion Project (P123367) CD: 31-Jul-2015 would benefit from a holistic evaluation, rather than individual ones. advisory services to improve credit risk management practices and main-streaming their credit FY12: Mifel - SME Banking (IFC 29030) Several markets present the resistance of family owned companies evaluation process, and in Agrofinanzas with additional capital to help transform it into a bank. FY13: CHG El Camino - Leasing Services (IFC 30731) to opening their capital base. The problem should be considered within an “ecosystem” where actions and regulations for each Knowledge: segment of the ecosystem should be recommended. FY08: Financial Sector Competitiveness (P106025) Preparation for how to respond to a crisis –including the FY08: Anti-Money Laundering /CFT Assessment of Mexico (P110383) analysis necessary to guide these responses– should FY09: Global Cat Mutual Bond Risk Mod (P111257) be done prior to the onset of a crisis. FY09: IFC-Access to capital for mortgage sofoles (IFC 548185) FY09: HF Cajas Mexico - Housing Finance (IFC 567848) FY10: MX Capital Markets (P114097) FY11: Financial Literacy in Mexico (P121967+ TF096913) FY11: Mexico Insolvency and Creditor Rights (ROSC) (P119779) FY11: PPIAF Pooled Bond Issue Quintana Roo (TF094649) FY12: Financial Sector Assessment Program (FSAP) - Mexico (P127554) FY12: Mexico: Financial Crisis Preparedness TA (P120524 + TF095837 - FIRST 9051) FY12: Assessing Poverty and Distributional Impacts of the Financial Crisis (TF094729) FY13: Developing Markets for Risk Mgmt. (P130076) – also in Thematic Area IV Convening: Seminar on disaster Risk Financing Mechanisms for the Mexican States. COUNTRY PARTNERSHIP STRATEGY FOR 71 THE UNITED MEXICAN STATES COUNTRY PARTNERSHIP STRATEGY FOR 72 THE UNITED MEXICAN STATES CPS Outcome/Cluster of Outcomes Status and Evaluation Summary WBG Activities that contributed to the Outcome Lessons and Suggestions for the new CPS and Outcome Indicators 3. Enhancement of short-term employ- Achieved and Exceeded. Knowledge: It is important that more effort is exerted in improving the ment support programs while developing The number of beneficiaries hired through PET increased from 365,000 in 2008 to FY08: FBS SEDESOL Increasing the Productivity of the Poor (P109739) quality of surveys and provisions should be made for the medium-term reforms for labor market 897,000 thousand in 2010, surpassing the CPS outcome indicator. According to the FY10: FBS Productivity of the Poor (P116539) linking of the survey data to administrative data. efficiency and labor productivity. Independent Evaluation Group (IEG) Review (P118070 - April, 2012): “The number of FY10: Mexico Poverty Employment Social MOUs (P120569) The publishing of aggregate tabular data on reported gross income beneficiaries and number of work shifts contracted through PET exceeded targets, FY10: Mexico Poverty and Employment Knowledge and taxable income (by all sources and by type of tax payer) would Indicator: Beneficiaries hired under the tem- and both more than doubled. Efficacy in labor sector policies is rated substantial.” and Coordination Services MOU (P113759) allow evidence-based adjustments to the ENIGH data (either through porary employment program over the 2009-2010 FY11: Mexico Poverty Employment Social KAS (P123304) the application of factors that vary across the income distribution period ranches 600 thousand people annually The Economic Response DPL supported the expansion of the Temporary Employment FY11-FY13: Labor Productivity in the Services and by individual characteristics, or through re-weighting the data). Program (PET). The DPL built on the Bank’s close collaboration through knowledge Sector in Latin America SFLAC This would be a significant improvement on the status quo. Baseline (2008): 365,000 services with the Ministry of Social Development (SEDESOL). An analytical study on the There is also need for significant research on the behavioral Target (2010): 650,000 PET showed that the program was able, as a response to the 2009 crisis, to increase its response to taxation, both in terms of labor supply, and in Actual (2009): 682,800 allocation of resources towards regions with increased levels of unemployment. A series terms of the classical incidence of indirect taxes. (2010): 897,000 of FBS provided a diagnostic and an action plan to increase income and employment for A labor reform bill was already put forth by the new administration. The the urban poor among other findings. Two MoUs coordinated the delivery of a series of WB produced a package of policy briefs for the new government; among poverty diagnostics, policy papers, and micro-simulation exercises on the targeting of them a note on labor issues that highlights the issue of productivity. The social programs, poverty diagnostics, labor productivity for the poor, and female labor ongoing work via several trust funds will be an important contribution to force participation and the production of new labor productivity data in the services sector efforts to collaborate with the new government on labor productivity. (supported by the Spanish Trust Fund for Latin America and the Caribbean - SFLAC). 4. Improved competitiveness by lowering Achieved. Financial: To make well informed decisions, the government should weight the international trade costs via reduction of The Economic Response DPL and a package of knowledge and convening services on agricul- FY10: Economic Policies in Response to the Global Crisis Development tradeoffs of policy options based on considerations such as cost, MFN tariffs and simplification of the trade tural trade supported Mexico’s efforts in reducing trade costs. The GoM reduced tariff rates Policy Loan (P118070) – Also as part of CPS Outcome 1.1 sequential importance, technical difficulty, risks, and impact. tariff regime and customs processes. and increased the number of duty free tariff lines for imports from countries without trade Policy options could promise greater benefits in the longer agreements or tariff preferences negotiated by Mexico, resulting in a simpler tariff structure. Knowledge: run, others could be targeted for quick action. Indicator: A reduction in the average tariff The average general MFN tariff rate fell from 10.4 percent in 2008 to 5.3 percent in 2010, FY08: Agricultural Trade (P101273) for manufactured imports to 5.3 percent and will be further reduced to 4.3 percent by the end of 2013. Based on IEG Reviews of Bank FY09: Agriculture PER (P101358) operations (P112264 – ICR April 17, 2012): “Efficiency in trade sector policies is rated high”. FY11: Customs Assessment Tool for Trade (CATT) (TF095406) Baseline (2008): 10.4% FY12: Royalties reform for the Mining Sector (P125795) Target (2010): 5.3% In addition, several indicators were used to measure progress towards simplification Actual (2010): 5.3% of tariff regime. The reduction in rates and increase in the number of duty free Convening: tariff lines resulted in a simpler tariff structure. The number of duty free FY13: SSKE: AgriFin Study Tour (P133238) tariff lines was increased from 20 percent in 2008 to 58.7 percent in 2010 and to 61 percent in 2011. The reforms supported by the Bank rationalized the borrower’s tariff structure, reduced distortions, and simplified Mexico’s trade regime. Regarding customs processes, the Government also implemented other reforms with the active support of the World Bank Group aimed at reducing trade costs, facilitating trade, and improving customs administration. Although the Mexico Customs Institutional Strengthening Project (47396-MX) was cancelled (see outcome 25), the Bank supported the creation of the Single Trade Window (STW) as part of the Strengthening the Business Environment for Enhanced Economic Growth DPL (Report 58431-MX, December 15, 2010). The STW became operational for the 21 trade processes linked to the General Customs Administration (part of SAT) in mid-January 2012. Moreover, the CATT improved trade quality by promoting excellence in customs performance management. CPS Outcome/Cluster of Outcomes Status and Evaluation Summary WBG Activities that contributed to the Outcome Lessons and Suggestions for the new CPS and Outcome Indicators Thematic Area II: Improving Competitiveness 5. Strengthening and expanding the Achieved. Financial: Top-down solutions are often inefficient and do not work on the Government’s Quality School Program. The series of APLs for School Based Management helped increase the number of basic educa- FY06: School Based Management Project I (P088728); ground. This was a central observation made during the School Based tion schools participating in the quality improvement program from 39,000 to over 50,000. By FY10: School Based Management Project II (P115347) Management project design, based on the international literature. Indicator: Increase of basic education end December 2012, the June 2014 targets on the percentage of PEC schools in marginalized Targeting is complicated, given the multiple objectives schools participating in PEC from 10.3 areas, as well as the percentage of indigenous schools participating in PEC, had nearly been Knowledge: of the PEC and the political realities. percent to 15.8 percent. reached. As of June 2013, over 26 percent of all basic education schools are participating in FY10: Mexican Alliance for Education Quality (P112567) Creating legal autonomy does not automatically the PEC program, up from 20 percent in 2010. Several technical studies have been carried lead to changes in school management. Original Baseline (2005/2006): 10.3% out with Bank support to improve the performance of the School Quality Program (PEC). Updated Baseline (2010): 20.3% Original Target (2009): 15.8% Updated Target (2014): 23% Actual: The original baselines and targets correspond to the School Based Mgmt I. By 12/30/2009, the target was surpassed with 20.35% of basic schools participating in PEC. Baseline in 2010 for School Based Mgmt II increased to 20.3% and target was set at 23% for 2014. However, this target was achieved and surpassed in 2012 reaching 26.7%. 6. Greater support for improved Achieved. Financial: Several factors worked well for sustaining the project’s benefits over coverage and quality of education The School Based Management I project contributed to increase the number of schools FY06: School Based Management Project I (P088728) time, and Mexico’s ability to continue to make progress in ensuring in poor municipalities. participating in the Quality Schools Program (PEC) from 10.3 percent during 2006 to FY10: School Based Management Project II (P115347) that the poorest segments of its population have access to high 20.35 percent in 2009. The percentage of poor schools located in highly marginalized and quality basic education, in an efficient manner: (i) the activities Indicator: Increase the percentage of poor marginalized areas participating in the PEC program also increased from 38.4 percent in supported by the project continue to be fully consistent with the schools participating in the School Based 2010 to 44.5 percent in 2013 (the project is on track to meet the 55% outcome for 2014). national education policy; (ii) CONAFE (implementing agency) is Management Program (located in highly a mature, strong institution, with well qualified staff, capable of marginalized and marginalized areas); coordinating the implementation of a complex program efficiently. Baseline (2010): 38.4% Target: (2014): 55% Actual: (2013): 44.5%. (No indicator was linked to this CPS outcome in the CPSPR Matrix; the indicator that is reported in the CPSCR was taken from CPSPR matrix but was originally linked to outcome number 12: “Improve access to ECD services and learning…”) COUNTRY PARTNERSHIP STRATEGY FOR 73 THE UNITED MEXICAN STATES COUNTRY PARTNERSHIP STRATEGY FOR 74 THE UNITED MEXICAN STATES CPS Outcome/Cluster of Outcomes Status and Evaluation Summary WBG Activities that contributed to the Outcome Lessons and Suggestions for the new CPS and Outcome Indicators 7. Improved relevance of upper Achieved and Exceeded. Financial: Implement a flexible research and policy analysis secondary education. The Bank supported the Government through a series of Development Policy Loans (DPLs). FY10: Upper Secondary Education (MUSE) program. Mexico has a strong policy research capacity and the These DPLs supported the implementation of the Upper Secondary Education Reform. By DPL (P112262); CD: 30-Jun-2011 Subsecretaría de Educación Media Superior (SEMS) has been Indicator: Competence based 2011, 100 percent of federal schools implemented the competence-based curriculum, FY12: Second Programmatic Upper Secondary Education proactive in developing a robust program and evaluation. curriculum is implemented in all well above the 50 percent target. Improvements in student learning can be seen by Development Policy Loan (P126297); CD: 29-Nov-2013 The Bank’s role should focus on providing particular inputs into federal upper secondary schools. ENLACE scores in Mathematics surpassing their targets, with 30.8 percent scoring good or policy research as opposed to leading the research agenda. excellent in the test as compared to 15 percent at the start of the project, and improved Knowledge: Further dissemination is needed to spread the findings of the Mexican Baseline (2010): 0 (No curriculum) transition from lower secondary and completion rates for students from the poorest FY09: Programmatic AAA: Mexico Secondary Education Alliance for Education Quality Study to the local level. This is important Target (2011): 50% quintile (from 57 percent to 62 percent and from 47 percent to 48 percent, respectively). 1st phase Programmatic (P106567). since the upper secondary level requires reform at the local level. Actual (2011): 100% FY09: Programmatic AAA: Mexico Secondary Education 1st phase Programmatic (P106567). FY13: Support for Improving Equity in MX Upper Secondary Education Reform (TF011538) Convening: SSKE: Upper Secondary Reform with Ecuador 8. Equitable expansion of Tertiary Achieved. Financial: When project finance is not additional, but rather a source of education through student assistance. Through a series of APLs on Tertiary Education Student Assistance, the number FY06: Tertiary Education Student Assistance I (P085593); financing for the overall fiscal budget, a clear understanding about of graduates from tertiary education in Mexico increased from 296,000 in 2003 FY11: Harmon Hall - English language school (IFC 29753) how budget for project-supported activities is provided is essential. Indicator: (a) Number of graduates to over 475,000 in 2009, and the share of 18 to 24 year-old students in tertiary FY12: FINEM SME - Lending to the education sector (IFC 28680) More care is needed to mitigate against the impact on from tertiary education in Mexico; education from households from the two lowest quintiles rose from 5.5 percent in FY12: UAG -Private university in Guadalajara (IFC 30445) projects due to a change in administration (as happened with 2003 to more than 20 percent in 2011, well above the 8 percent target for 2009. FY13: Edilar-Educational material content (IFC 31095) respect to this project in 2006) that is often accompanied Baseline (2003): 296,000 IFC successfully supported the UAG in the construction and renovation of its facilities. by changes that reach far down into the executive. Target (2009): 432,000 Moreover, IFC worked with FINEM to expand its lending operations to provide loans In a sophisticated middle-income country like Mexico, it is Actual (2009): 475,00 to students. With IFC investment, Edilar financed the sale of additional products to not possible to ring-fence a Bank-financed project from the public sector teachers, as well as the lending of resources for continuing education. broader, more complex government program. In the case of this (b) Share of 18-24 year-old students in tertiary project, as the size of the PRONABES program expanded, project education from households classified at the restructuring could have included a revision in the project financing two lowest quintiles of the income distribution plan to include all government financing to PRONABES. Baseline (2003): 5.5% Target (2009): 8% Actual (2011): 20% (The CPSPR indicator for this outcome was: “increase of low income students from tertiary education from 3.4% to 7.5%”. This indicator changed due to a project restructuring of the Tertiary Education Student Assistance (P085593) project. The two new indicators capture the original CPSPR indicator that aimed to measure an increase of low income students in tertiary education in Mexico). CPS Outcome/Cluster of Outcomes Status and Evaluation Summary WBG Activities that contributed to the Outcome Lessons and Suggestions for the new CPS and Outcome Indicators 9. Improved human skills, infrastructure, Partially Achieved. Financial: The Information Technology project was designed with links between local and global The Bank provided support through the Innovation for Competitiveness and the FY05: Innovation for Competitiveness APL - First strong private sector participation. The government’s companies, financing and legal and IT Development projects. The number of companies with technical capacity, Phase (P089865); CD: 31-Dec-2010 role would thus be limited to the PPP concept design regulatory framework for IT. quality standard certifications, and access to new markets increased to 413 in FY08: Lending: Information Technology Development and promotion and also contributing minimum public 2012 (well above the 390 target for 2014). Total private R&D also increased from (PROSOFT) (P106589; CD:31-Dec-2014 funds to mitigate risks for private sector investments. Indicators: (a) Number of companies 0.15 in 2004 to 0.17 percent in 2009 but below the 0.23 percent target (2009) (as FY11: Strengthening the Business Environment for Enhanced The availability of a talent pool that is conversant with with technical capacity, quality standards part of the Innovation for Competitiveness project, the baseline value for 2004 Economic Growth DPL (P112264); CD: 31-Dec-2011 English language is one of the key drivers of investments certifications and access to new markets; was informally revised from 0.12% to 0.15% based on availability of updated in the IT/ITES sector. It was necessary then to include a data. The target for 2009 was informally revised accordingly from 0.20% to Knowledge: component of English language training in the project. Baseline (2008): 0 0.23%. These targets were revised based on more accurate data from the 2006 Doing Business Report A DPL approach was rejected on the information Target (2014): 390 innovation survey and revisions to the methodology of the historical GDP series). technology side because there are no major reforms Actual (Dec 2012): 413 required to remove bottlenecks in the IT sector and Moreover, tax simplification and reduction in the number of tax declarations reforms in other sectors (i.e. Education) could not (Indicator (a) for this outcome was and payment procedures by businesses benefited the private sector with be implemented in practice in the short-term. modified to reflect the change in the substantial time (40 percent) and cost savings (over 0.1 percent of GDP). indicator of the Information Technology Although the number of agreements to streamline public procurements project after Mid-Term Review). procedures fell short of the DPL target, the project was successful in mobilizing annual private investment in infrastructure surpassing the (b) Total private research and MX$15 billion target. The Bank also contributed with the Doing Business development (R&D) as percent of GDP reports that provided critical reform benchmarks within Mexico from 0.19 percent to 0.31 percent. CPSPR Baseline (no date): 0.19% CPCR Original Baseline (2004): 0.12% CPSCR Revised Baseline (2004): 0.15% CPSPR Target (no date): 0.31% APL Original Target (2009): 0.20% CPSCR Revised Target (2009): 0.23% Actual (2009): 0.17% (The discrepancy between the baseline and the target between the CPSPR and the CPSCR could be attributed to observations not available today, Yet, the APL revised baseline and target should be used to assess this outcome) COUNTRY PARTNERSHIP STRATEGY FOR 75 THE UNITED MEXICAN STATES COUNTRY PARTNERSHIP STRATEGY FOR 76 THE UNITED MEXICAN STATES CPS Outcome/Cluster of Outcomes Status and Evaluation Summary WBG Activities that contributed to the Outcome Lessons and Suggestions for the new CPS and Outcome Indicators Thematic Area III: Promoting Social Inclusion 10. Increase capacities in health, Achieved. Financial: The Bank played an important and effective role during the nutrition and education of poor families Through the Oportunidades Loan and its Additional Financing, as of December 2012, 5.8 FY09: Support to Oportunidades and AF (P115067+ TF096356+ TF098119) crisis supporting social Protection Programs. According to an through human capital investment by million families were participating in the program and the target to increase the number of FY11: Additional Financing (P122349) - CD: 12/31/13 analysis done by CONEVAL, extreme poverty levels would have promoting regular health check-ups, children participating in Oportunidades was surpassed. Extensive technical support was Knowledge: been even higher, particularly in rural areas, in the absence improving health status, and raising provided under the programmatic Social Protection which included a strategic review of the FY12: Programmatic Social Protection for the Poor (P116169) of social protection programs such as Oportunidades. school enrollment and attendance rates. Oportunidades Program, technical assistance to review the Nutrition’s program, a review of Scale Up Nutrition (TF098119) The additional financing instrument became the best Indicators: state coordination model, among others. Also, as part of knowledge exchanges, during the Poverty and Nutrition Maps FBS (P117527) mechanism to continue Bank’s support to Oportunidades. The (1) At least maintain the current level of families CPS period, Oportunidades received numerous delegations from countries around the world. Contigo Vamos Evaluation (TF096356) use of the AF was simpler, faster, and more cost-effective participating in Oportunidades, 5.2 million; Convening: for the borrower, compared to other lending tools. Baseline (2008): 5.04 million FY09-FY10: SSKE: SEETF Effective Cash Transfers Program Lessons CCT programs cannot be thought of in isolation from other social Target (2012): 5.2 million across Honduras, Belize, Mexico And Jamaica (3/2009-9/2010) policies. In particular, achieving the human capital accumulation goals Actual (2012): 5.85 million FY09-FY11: SSKE: Tackling Extreme Poverty sought by CCT programs will typically require adaptation of the supply (2) 3 million increase in the number of in Bolivia (TF094130) 4/2009-3/2011 of social services, including expanding coverage and improving quality. children participating in Oportunidades; FY11-FY12: SSKE: Beyond the Transfers: Building Capacity through CCT programs will not be able to break the intergenerational Baseline (2008): 7.22 million Knowledge Exchange on CCT Programs in LAC. 5/2011 - 6/2012. transmission of poverty if there are no jobs or adequate livelihoods Target (2012): 3 million increase FY12: SSKE: CCT Programs in Mexico and Colombia (4/2012 - 5/2012) available when assisted children become earners in their own right. Actual (2012): 12.14 million FY12-FY13: SSKE: Exchange on Poverty Committees building and (3) Pilot mid-wife support in the poor functioning in Latin America and the OECS (11/2011 - 01-2013) municipalities (At least 30) - Indicator FY13: SSKE: Study Tour to Mexico – Oportunidades (10/2012) dropped from the Oportunidades project – as per agreement with government. 11. Preserve and expand the Achieved. Financial: In highly decentralized systems, there is a need for comprehensive health Popular Health Insurance’s coverage With support of the Social Protection System in Health project, the Bank promoted access FY01: Basic Health Care Project III (P066321) sector reforms to be implemented successfully at the local level. of poor and informal worker families, to healthcare for the poor. PHI affiliates increased from 27 million at the beginning of FY10: Support to the Social Protection System The introduction of health insurance can yield major improvements and to strengthen its financing the CPS period, to more than 52 million at the end, well above the 45 million target. The in Health (P116226); CD: 12/31/13 in the performance of a health system, but the full potential and affiliation systems. project also increased the affiliated indigenous individuals by 15.2 percent between 2005 Centro Médico Puertas de Hierro - Health services (IFC impact will only be realized if beneficiaries are empowered. and 2009 and saw an increase in the percentage of health facilities accredited to guarantee 26323) - FY08, (IFC 22539) – FY05, (IFC 27603) – FY099 Indicator: Number of individuals access to PHI beneficiaries from 10.7 to 62.4 percent in the same years. Several knowledge Mexico Hospitals - PPP (IFC 26388) - FY11 affiliated with the Popular Health Insurance exchange events were conducted as part of Bank’s support to this CPS outcome. Hospitalaria- Health services (IFC 30281) - FY13 increased from 30.5 to 45 million. Knowledge: FY12: Social Protection PKS (P116169) Baseline (2008-2009): 30.5 million FY12: Universal Health (P120697) Target (2013): 45 million FY12: Health System Modernization (P106709) Actual (2013): 52.9 million Convening: FY12: SSKE: Exchange on maternal mortality - Study Tour (4/2012) FY12: SSKE: Global Knowledge Exchange Activity on Health Financing in Mexico (5/2012 - 6/2012). FY12-FY13: SSKE: Exchange with Argentina’s Plan Nacer - virtual exchange + study tour (5/2012 - 9/2012). FY13: SSKE. Exchange on maternal and neonatal health (Study Tour). 9/2012 CPS Outcome/Cluster of Outcomes Status and Evaluation Summary WBG Activities that contributed to the Outcome Lessons and Suggestions for the new CPS and Outcome Indicators 12. Improve access to ECD services and Achieved. Financial: An APL is a useful instrument to support implementation learning outcomes of children in the most The ongoing Compensatory Education project has supported the increase of children FY10: Compensatory Education (P101369) – CD: 30-Jun-2014 of a government program where a long-term involvement marginalized municipalities of Mexico. attending ECD sessions by 30 percent (51,530) between 2010 and 2013 and the number may be necessary to produce expected outcomes. of parents attending these sessions increased from 38,620 in 2009 to 49,447 in 2012, Knowledge: When designing projects and corresponding Bank loans with both rela- Indicator: 35 % increase in children from exceeding the end of year target. It is expected the project will reach its target 58,685 FY10: Comparative analysis of Child Care Programs: Benchmarking tively fast disbursing components and slower technical assistance type 43,241 to 58,685 attending early childhood during its final year of implementation. Several knowledge products were produced of Mexico’s Child Care Program to Support Working Mothers activities, it is desirable to build in mechanisms that pace the disburse- development programs in poor municipalities. that contributed to improve access to ECD services. An impact evaluation to measure FY12: Mexico Ages - Strategic Impact Evaluation ments of fast disbursing components to progress in the implementation the impact of empowering parental participation in the PEC was also conducted. (TF094146) (P118546 + TF095460) of technical assistance for institutional strengthening type activities. Baseline (2010): 43,241 FY13: MX- (JIT) Citizen Security NLTA (P143218) Care is needed in the design of a project’s monitoring framework Target (2014): 58,685 and indicators to avoid individual indicators that are not Actual (2013): 51,530 feasible given the changes brought about by the project. Analysis of the female labor force participation aspects of (Originally, Outcome 12 had two indicators in the Bank programs reviewed proved more difficult than the the CPSPR Matrix. The first one: “Increase the issues related to Early Childhood Development (ECD). As such, percentage of poor schools participating …” further analysis was recommended to review factors that was moved to Outcome 6 in the CPSCR given more closely impact female labor force participation. that it better captures the engagement in that area. The second indicator remains unchanged in the CPRCR and fully captures the Bank’s support to improve access to ECD services). 13. Strengthen the capacity of Partially Achieved. Financial: Efficacy of the emergency instrument in health emergencies. the Mexican health system to Despite the cancellation of the Influenza project due to problems using planned retroactive FY10: Influenza Prevention & Control Project (P116965) Consistency of emergency policies with other fiduciary policies. control epidemic waves. financing, the Ministry of Health made significant progress towards the original loan PDOs. GAC policy and its application under emergency situations. By end-December 2010, 24% of Mexico population was vaccinated against A/H1N1. Knowledge: Different nature of emergencies requires different Indicator: Percentage of population FY10-FY12: Influenza A/H1N1 TF Grant (TF095094) responses; non-incremental financing incentives. vaccinated against AH1N1. As part of the Influenza project, the SINAVE performance index was selected to measure FY12: Health System Modernization (P106709) High-risk groups can only be reached through an intense progress towards the strengthening of the capacity of the Mexican health system to monitor FY12: Universal Health Coverage (P120697) communication effort. In order to reach specific high-risk pop- Baseline (2008): 0 the spread of the Influenza viruses. With Bank’s support, the SINAVE (the National System ulation groups, it is necessary to make adjustments based Target (2011): 15% for Epidemiological Surveillance) was strengthened. The Bank completed a performance on their specific characteristics and conditions. Actual (2010): 24% assessment of SINAVE and identified areas where to improve the system. The SINAVE The grant process in emergency situations is slower than performance index31 improved from a baseline of 79.8 in December 2008 to 81.5 in December one would expect given the systems in place for grant 2010, while the SISVEFLU index improved from a baseline of 49.0 to 61.0 over the same period. management and the Federal nature of the country. There is a need to review Mexico’s financial and administrative system so as to speed up the implementation of grants. PKS’s proved to be a very flexible instrument. They enabled the Bank to respond quickly to unexpected emergency situations. COUNTRY PARTNERSHIP STRATEGY FOR 77 THE UNITED MEXICAN STATES COUNTRY PARTNERSHIP STRATEGY FOR 78 THE UNITED MEXICAN STATES CPS Outcome/Cluster of Outcomes Status and Evaluation Summary WBG Activities that contributed to the Outcome Lessons and Suggestions for the new CPS and Outcome Indicators Thematic Area IV: Developing Infrastructure and Assuring Energy Security and Environmental Sustainability 14. Development of massive Achieved. Financial: The main drawback for safeguards implementation in urban transport evaluating alternative The Bank has been deeply engaged with the Secretaría de Comunicaciones y Transportes FY06: CN: Mexico City Insurgentes Bus Rapid Transit System Carbon the transport sector is the lack of environmental and solutions and proposing frameworks (SCT) through an FY09 FBS (now Reimbursable Advisory Service, RAS) and the Urban Finance Project TF056112 (P082656); CD: 31-December-2015 social capacity within Mexico’s financing intermediary that for private sector participation. Transport Transformation Project (UTTP) with the objective of designing a federal program FY09-FY13: GEF Grant Sustainable Transport and Air functions as the counterpart of the Bank (i.e. BANOBRAS). to support the development of massive urban public transport systems (i.e., PROTRAM), Quality Program (STAQ) (TF095695, P114012) There is ample room for a federal program aimed at Indicator: Improved bus system which now has a portfolio of 31 projects, out of which 18 are in the pipeline and 13 have FY10: Urban Transport Transformation Project (UTTP) supporting mass transit projects in Mexican cities. energy efficiency (in liters of diesel been approved. According to the M&E indicators for the UTTP, between 2010 and 2013 the (TF096291, TF097689, P107159) CD: 30-Jun-2017 FONADIN is an adequate vehicle for implementation. per passenger kilometer). project leveraged 910 million dollars in counterpart financing. Moreover, the ‘Insurgentes Baseline (2006): No change in Bus Rapid Transit System Carbon Finance’ project has contributed to improve bus system Knowledge: bus system energy efficiency. energy efficiency by replacing 368, old, small and mid-sized, gasoline and gas –mainly FY09: AAA FBS in Massive Urban Transport Federal Program (P110474) Target (2007): Field measurement comply Liquid Petroleum Gas (LPG)– units with 105 articulated passenger diesel buses. This or surpass previously estimated emission contributed to lower overall fuel consumption and lower greenhouse gas emissions reductions caused by implementation of corridor. (GHG) to the extent that articulated buses consume less fuel per passenger/km. Actual (2007): Target was achieved given This target was achieved given that 368 buses were scrapped or disassembled (no that 368 buses were scrapped or disassembled longer generating emissions) with support from the Bank. Old buses were then replaced (no longer generating emissions) with with new articulated buses which consume less fuel per passenger km. Emissions support from the Bank. Old buses were then reductions in the period Nov. 1, 2009 to Oct. 31, 2010 (report received by the Bank on replaced with new articulated buses which July 22, 2011) were 50,180 tons CO2/year, of which modal change were 38,790 tons. consume less fuel per passenger km. 15. Catalytic use of Clean Development Achieved. Financial: A DPL can pave the way for many other Bank-financed operations, and Mechanism to foster technology, Through the Framework for Green Growth DPL, the Bank supported the government to further FY09-FY10: Framework for Green Growth in turn, those operations enrich the dialogue to develop the DPL. regulatory and institutional changes develop the regulatory, monitoring and financial framework to achieve low emissions in Development Policy Loan (P115608) It is difficult to overcome political differences between the Federal in the public transport sector. the transport and energy sectors. In parallel to the Green Growth DPL, the introduction of FY02-FY09: GEF Grant: Introduction of Climate Friendly District’s and the State of Mexico’s administrations. The metropolitan Climate Friendly Measures in Transport supported the design of the BRT corridors in Mexico Measures in Transport (TF-51612, P059161) character of some of the projects (i.e. Mexico City metropolitan Indicator: Improved bus productivity: serving City (Metrobus) and the creation of the institutional, regulatory, and business framework for FY09-FY13 PHRD Grant: Low Carbon Bus Corridor - TF091333 (P106305) area) and the involvement of the State of Mexico, which shares the more passengers with lesser number of units operating the BRT system. Metrobus has now become a more robust agency in technical terms FY11: Roads Concessions improvement- PPP (IFC 26232) same transport and air quality related problems, was limited. and increased modal share for large buses. and is mobilizing 800,000 passengers per day. The ‘Insurgentes Bus Rapid Transit System Development of transport baseline methodologies needs to be further Carbon Finance’ project has also contributed to improve bus productivity by serving more encouraged. Similarly, further field testing of bus technologies is Baseline (2006): 360 bus units passengers with lesser number of units and increase modal share of large buses. As of end needed for defining emission standards and for the decision-making operating inefficiently on Insurgentes. 2012, (i) 368 buses have been scrapped or disassembled (no longer generating emissions); process on alternative bus technologies for public transport. (ii) modal shift is at 18 percent, well above the 10 target; and (iii) demand continues to grow Introduction of new bus technologies and low carbon fuels needs to Target (2007): Increase in modal shift to 10%. reaching an average of 290,000 rides per weekday with peaks of over 300,000 trips per day. be encouraged to form a larger share of the modal and fuel mix. (The indicator chosen for the CPSPR was a first attempt to reflect a quantitative Actual (2012): 368 buses have been scrapped value on the implementation of a Clean Development Mechanism in the transport or disassembled (no longer generating sector in Mexico (i.e. Mexico City BRT system). Yet, in the CPSCR, we do acknowledge emissions). This represents a (ii) modal shift that this indicator does not completely capture the overall engagement of the Bank of 18 percent, well above the 10 target. in this area and does not fully capture the target outcome. As a result, we also report other activities that qualitatively reflect the Bank successful support to foster technology, regulatory and institutional changes in the public transport sector) CPS Outcome/Cluster of Outcomes Status and Evaluation Summary WBG Activities that contributed to the Outcome Lessons and Suggestions for the new CPS and Outcome Indicators 16. To improve federal housing Partially Achieved. Financial: There are tradeoffs between ambitious and comprehensive system to facilitate access Outcomes aiming at improving federal housing systems were partially FY07-FY08: MX Affordable Housing and sectoral reform programs, which are potentially more to housing by low- and achieved. A loan approved in FY09 to support mortgage lending, including Urban Poverty Reduction Development Policy beneficial, but inherently more risky, and more focused moderate-income families. greater down-market access via Sociedad Hipotecaria Federal (SHF) Loan III (HUDPL III) (P101342) (2007). programs that address a limited range of issues for successfully strengthened SHF’s financial position and stabilized the housing FY09: Private Housing Finance Markets which both the potential benefits and risks are lower. Indicator: MX$23,000 million on market during the crisis. Overall, the project successfully contributed to Strengthening Project (P112258). CD: 12/31/12 financial support provided by SHF to the achievement of the higher-order outcome indicator goal of 1 million FY04-FY08: Housing and Urban Technical In large and sophisticated middle-income countries private sector intermediaries (including housing solutions per year between 2008 and 2012. Yet, the project did Assistance Loan (HUTAL) (P088080). like Mexico, an operation should avoid promising loans to primary market, secondary not achieve the expected gradual expansion of SHF’s products towards FY08: Vinte- Low income housing (IFC 26292) sector-wide reforms when commensurate results cannot market purchases, liquidity lines). lower income segments (i.e. MX$23,000 million on financial support FY11: Artha Capital- Sustainable Urban Projects (IFC 30836) be realistically achieved in the short timeframe and with provided by SHF to private sector intermediaries) reflecting flaws in FY12: Alpha Geo- Low income housing (IFC 30545) the relatively modest scale of assistance offered. Baseline (June 2008): 20,700 project design and delays in the implementation of relevant reforms. FY13URBI: Verde-Energy efficient low Target (Dec 2008): 23,000 income housing (IFC 31548) Contrary to down-market aims, establishing a sound Actual (Dec 2008): 23,000 Although IFC made several investments in equity, debt and guarantees reputation in financial markets and sustaining a to bond issuances to support several non-bank financial institutions (Su Knowledge: high quality and expanding portfolio can lead a (The CPSPR Matrix only included a Casita, Vértice, GMAC) which made loans to the low-income mortgage FY08-FY13: AAA Housing Finance Program TA (P128130) new mortgage financier up-market, by targeting medium term intermediate outcome sector, the three largest homebuilders are currently experiencing + FBS to Sociedad Hipotecaria Federal FPD Mexico higher income borrowers with larger loans. indicator. To capture the overall a liquidity crisis after a market environment shift in 2012. Non-banking financial institutions (P106361) sector performance to which Sociedad + FBS for Housing Finance (20051272) Cancelled In general terms, Technical Assistance Lending has limited Hipotecaria Federal was expected to At the end of FY13, IFC had a portfolio totaling US$175 million exposure +Third FBS to Sociedad Hipotecaria Federal (P117971) benefits in a MIC environment. Traditionally TALs offer contribute, this CPSCR incorporates a (net of equity write downs) in the sector, with the following projects: (i) FY 12: AAA Sustainable Urban Development a means of supporting nascent and weak institutions higher development outcome: 1 million US$50 million secured A Loan and US$20 million secured Canada Climate in MX Cities (P127214 + TF010018) and of preparing for investment operations. In a MIC, housing solutions delivered per year). Change Program (“CCCP”) Loan to Urbi; (ii) US$48 million unsecured, however, the costs of setting up and operating public revolving line to Urbi through Global Trade Supplier Finance (“GTSF”); institutions are covered by existing government revenue. (iii) US$71 million unsecured, revolving line to Homex through GTSF; and (iv) US$25 million equity investment in Alpha Geo, a subsidiary of Both sector wide assistance and institutional development Geo, which has recently been written down to US$5.4 million. The four remain elusive for MICs. HUTAL’s attempt to implement transactions were committed in mid-to-late FY12 and early FY13. sector-wide reform by assigning simultaneous (and complementary) tasks and technical assistance funding to various implementing agencies proved frustrating for its failure to foster agreement even on a strategy for unification, let alone sector unification itself, and costly for increasing supervision costs. COUNTRY PARTNERSHIP STRATEGY FOR 79 THE UNITED MEXICAN STATES COUNTRY PARTNERSHIP STRATEGY FOR 80 THE UNITED MEXICAN STATES CPS Outcome/Cluster of Outcomes Status and Evaluation Summary WBG Activities that contributed to the Outcome Lessons and Suggestions for the new CPS and Outcome Indicators 17. Tools and instruments to Achieved. Financial: Direct IBRD-support for infrastructure at the subnational level in Mexico induce local authorities to The PATME experience documented and disseminated successful water models in 10 water FY06-FY10: Modernization of the Water and Sanitation is both feasible and important. However, a new paradigm for delivering improve financial sustainability utilities participating in the program. Manuals developed by CONAGUA were distributed to Sector Technical Assistance Project (P091695) this type of support needs to be formulated to be more efficient. and efficiency of water supply water utilities and water and sanitation sector institutions beyond the realm of PATME. FY04-FY09: Lending Decentralized Infrastructure and sanitation service provision A satisfactory degree of improvement was observed in operational and financial performance Reform and Development Loan (P080149) Multi-sector SWAP operations may not be practical. This requires in their jurisdiction. of water utilities that participated in the program. Continuity in PATME program was FY03-FY09: Lending: Integrated Irrigation significant effort to design and supervise, and potentially dilute the one of the main determinants of success. For 10 water utilities participating in PATME Modernization Project (P035752) Bank’s ability to provide good policy advice and technical assistance. Indicator: Replicable models of for more than one year, results showed an increase in continuity of service by over 10% FY08: Tlalnepantla Municipal Water Conser- successful and sustainable provision of while also coverage of water and sanitation services also increased. Water production per vation Project - PPP (IFC 530171) It is necessary to distinguish form from substance. Most of the innovation water and sanitation services available. person decreased from 297 to 274 for 2006 and 2009 respectively. Regarding efficiency FY10: Grant Enhancing Capacity of Water Utilities for (OBD, SWAP, National Program, and Country Systems) included in improvements: A satisfactory degree of improvement was observed in operational and Integrated Water Resources Management (TF096725) some of the water sector DPLs were internal Bank preoccupations Baseline (2006): No baseline was set. financial performance of water utilities that participated in the program. Non-revenue water FY11: DPL: Framework for Adaptation to Climate Change barely understood by the client at the state and municipal levels. showed a reduction of 4% in relation to the starting point (set at 46.6%). The recovery in the Water Sector (P120134) CD: 31-Dec-12 Target (2010): Replicable models tariff increased in absolute terms of 31% far exceeding the target set in the PAD of 10%. FY10/FY11: Water Capital- Lease of water treatment For modernization of irrigation projects in Mexico aiming to have impacts documented and disseminated. and efficient water equipment (IFC 29509) on increased agricultural competitiveness, it is necessary to establish a Through the successful rehabilitation and modernization of irrigation infrastructure, and FY10-FY12: Grant PPIAF: Market Based Infrastructure common strategy between institutions such as SAGARPA and CONAGUA Actual (2010): Documentation the adoption of improved farm irrigation application systems, the Bank significantly Financing for Campeche (P122401) that forces them to setup a joint M&E system and report on the same and dissemination of replicable impacted water use efficiency. Moreover, the Water Sector DPL, approved in FY10, had indicators – not only in terms of number of hectares with modernized models of sustainable provision of water a significant institutional impact. In an effort to support selected Mexican States to Knowledge: systems and improved irrigation technologies, but also on indicators of and sanitation services was achieved. improve their provision and performance of infrastructure services (including water supply FY08: AAA Water Sector Financing Strategy (P104740) agriculture productivity, labor generated, areas under high-value crops. and sanitation), the Bank worked with the State of Guanajuato in the implementation FY10: AAA Water Sector Flagship (P111969) of the Decentralized Infrastructure Development Loan. A substantial improvement was observed in the accounted-for water during the life of the project, from 129.6 to 171.5 Convening: million m3 between 2005 and 2008—i.e., equivalent to a 32 percent increase. FY09: Sharing Int’l Experiences in WSS (P112539) IFC provided capacity advisory support to the municipal water company (OPDM) during the design and implementation of a wastewater recycling plant in the municipality of Tlalnepantla. Additionally, in 2010 IFC invested in Water Capital a leasing company that provides energy efficiency, renewable energy, and supply and demand water management solutions tailored to the specific needs of its customers. CPS Outcome/Cluster of Outcomes Status and Evaluation Summary WBG Activities that contributed to the Outcome Lessons and Suggestions for the new CPS and Outcome Indicators 18. Provision of environmental Achieved. Financial: Trust Fund resources were indispensable for providing services of national and Mexico has been recognized as an international leader in forest management. FY08-09: Mexico Environmental Sustainability TA to advance the government reform program and to global significance and secure Its PES (Payment of Environmental Services) program is the second Development Policy Loan (ENVDPL III) strengthen coordination among key stakeholders. long-term sustainability. largest in the world in terms of total area enrolled. With the support of the (P095510) + Supplemental + TF055408 Development of robust monitoring and evaluation is Environmental Services project and a GEF grant, the Bank aimed to enhance FY02-FY10: GEF Grant Consolidation of the Protected important for the credibility of PES programs. The credibility Indicator: Additional hectares under the provision of environmental services of national and global significance Areas System (SINAP II) Project + Additional Financing of environmental services programs relies not only on environmental service contracts. and secure long-term sustainability. The project had an important impact in (P065988, TF-50311, P106103 and P112327) fiduciary monitoring but also mainly on quantification increasing hydrological, biodiversity conservation, and carbon sequestration FY00-FY09: GEF Grant Mexico Mesoamerican of the actual impacts of environmental services. Baseline (2006): 538,106.86 ha services. By the end of the project, 1.5 million additional hectares were Biological Corridor Project (TF24371, P060908) Although the Comisión Nacional de Áreas Naturales Target (2011): 500,000 ha additional added under environmental service contracts, well above the 500,000 FY05-FY10: Lending Access to Land for Protegidas (CONANP) has put in place processes Actual (2011): 2.5 million ha. hectares target. CONAFOR gained more experience in managing Payment Young Farmers Pilot Project (P088732) for measuring outcomes, it does not have the of Environmental Services (PES) projects, and strengthened its capacity to FY10: EURUS- Wind power (IFC 28434) ability to address threats since this requires strong share lessons of experience internationally. A study that evaluated the PES FY11: EDF La Ventosa- Wind power (IFC 28070) coordination with other Government agencies that program found that deforestation dropped by 10% in participants properties. FY12: Sacred Orchids of Chiapas: Cultural and are often understaffed and underfunded. religious values in conservation project - TF091426 The energy invested in the evaluation of A series of Environmental DPLs were also approved during crisis years FY13: Proteak- Certified teak plantations (IFC 31195) Environmental Impact Assessments (EIAs) not only as part of the Bank’s support in structural reforms areas. The ENVDPL pays dividends in avoiding environmental impacts III aimed to increase the support for sustainable forestry management. Knowledge: and sustainability issues, but also provides early During the loan period, the Bank provided technical assistance to revise FY03-FY08: Second Community Forestry opportunities to encourage biodiversity offsets. and update the Forest Fund. By the end of 2009, 15 million ha. of forest Project (PROCYMAF II) (P035751) When an opportunity to improve project design is missed, under sustainable forest management operations were financed by the the team should consider conducting an additional external Mexican Forest Fund. Another major achievement of this project was Convening: evaluation to realistically evaluate design or implementation the congressional approval of the Energy Sector reform package. FY06-FY11: Lending Environmental Services flaws and inadequacies that can be corrected Project (P087038, P089171) + GEF Grant (TF055086 FY05-FY07) + TF056321 (FY07-FY11) FY 11: Grant + Convening Services South-South Cooperation and knowledge sharing for REDD Activities in Latin America and the Caribbean (TF096113) COUNTRY PARTNERSHIP STRATEGY FOR 81 THE UNITED MEXICAN STATES COUNTRY PARTNERSHIP STRATEGY FOR 82 THE UNITED MEXICAN STATES CPS Outcome/Cluster of Outcomes Status and Evaluation Summary WBG Activities that contributed to the Outcome Lessons and Suggestions for the new CPS and Outcome Indicators 19. Increase access to efficient Partially Achieved. Financial: The fact that the Bank was one of the first agencies to and sustainable integrated energy The Bank supported the Government’s rural electrification program through a FY07: GEF Grant: Solar Thermal Project Agua Prieta support renewable energy in risky projects and within services in --predominantly combination of investment operations and grants from the Global Environment II (TF057033, P066426); CD: 31-Jan-2014 complex settings, has helped many others to follow. indigenous-- rural areas of Mexico. Facility (GEF). Both projects, however, showed limited progress due to a FY08: Lending and GEF Grant: Integrated Energy Services combination of complex procurement processes and project implementation Project (TF091733, P088996); CD: 30-Jun-2014 Indicators: (a) 47,080 HH difficulties. By the end of the CPS period, the number of households electrified electrified with Renewable with solar photovoltaic technology had not increased, given that the solar farms Knowledge: Energy Technologies (RET); had not yet started to operate. After a restructuring of the project, including FY13: MoU Reducing Fuel Subsidies: a one-year extension of the closing date (to June 2014) and a simplification Public Policy Options (P112959) Baseline (2008): 0 of the project’s implementations arrangements, the bidding process for the Original target (2012): 47,080 first set of subprojects financed by the Bank was launched during the first Revised target (2014): 4,432 quarter of 2013, and it is expected that the next bidding processes will advance Actual (2013): 0 during the next CPS period. Although it is hard at this time to evaluate if the development outcome will be achieved within the new time frames, progress (b) Incremental increase in 5650 during the CPS period was slow and the outcome is not observed yet. However, MWh/year of electricity consumed since the end of 2012 and based on lessons learned, the Bank hired a local for productive uses in targeted consultant to help smooth out the implementation of these projects. communities (MWh/year). The main intervention under this outcome, the Integrated Energy Baseline (2008): 0 Services project (P088996), was focused on rural development. As the Original target (2012): 5,650 majority of people living in the communities targeted are indigenous, Revised target (2014): 5,768 the Project is still considered an indigenous people development Actual (2013): 0 initiative. In preparation for the Project , the Mexican Ministry of Energy (SENER), in coordination with the governments of targeted States and (The CPSPR indicator baselines Municipalities, undertook a systematic social assessment that included: and targets were changed in the CPSCR matrix due to a restructuring - A comprehensive analysis of the social context and the of the IBRD project - P088996) applicable legal and institutional framework. - Baseline information (demographic, social, cultural, political, and other). - A review of stakeholder dynamics (including institutions). - A structured consultation to assess the potential positive and negative effects derived from the Project and to identify preventing or mitigating measures. CPS Outcome/Cluster of Outcomes Status and Evaluation Summary WBG Activities that contributed to the Outcome Lessons and Suggestions for the new CPS and Outcome Indicators 20. Regulatory, monitoring and Partially Achieved. Financial: Even in middle-income countries, a grant is very important financial framework for low As part of the Bank’s support in the agriculture area, the ongoing Sustainable FY10: Lending and Grant (GEF): Mexico Sustainable Rural De- to finance aspects of studies that may be overlooked, emissions evolution of the transport Rural Development project is well on target to meet this outcome. By the end velopment Project (TF093134, P106261) + Additional Financing especially areas of environmental and social concerns. and energy sectors developed. of 2012, 770 small and medium-sized agri-businesses adopted environmental (P130623) + TF090643 AD: 24-Feb-2009; CD: 31-Dec-2016 Based on technical assistance, a viable strategy to scale-up sustainable technologies (i.e. renewable energy sources, energy efficient FY11: Lending and GEF Grant: Efficient lighting and renewable energy in any country should include at least Indicator: (a) 919 small and medi- technologies, and/or sustainable waste management and biomass conversion), appliances (P106424) CD: 30-Jun-2014 + Additional the following elements, which are mentioned in Mexico’s um-sized agri-businesses adopting en- equivalent to 600,000 tons of CO2 equivalent avoided (close to the original Financing (P120654, TF98062, TF98465) CD: 30-Jun-2014 Renewables Law: (1) The national strategy must establish vironmentally sustainable technologies; target of 919 SMEs and 770,000 tons of CO2 equivalent). Moreover, the Efficient a legal obligation and a regulatory framework; (2) Must Lighting and Appliances project promoted Mexico’s efficient use of energy Knowledge: establish a renewable generation target; (3) Must include Baseline (2010): 0 and the mitigation of climate change by increasing the use of energy efficient FY10: AAA Energy Sector MOU (P114892) financial incentives to attract investors in renewable energy; Original target (2013): 919 technologies at the residential level. Specifically, less consumption of electricity FY12: Grant+ Convening Services Renewable Energy (4) Must define a set of rules for renewable energy contracting; Revised target (2013): 2,168 favored the environment, as an emission of about 865,000 tons of CO2 was Assistance Program (ESMAP) (TF095212) and (5) The national strategy requires institutional support Actual (2012): 770 avoided with the 22.9 million light bulbs that were changed during 2012. (Ministries, environmental and regulatory bodies, etc.). (b) 770,000 tons of CO2 IFC, through its SBA, worked with projects that co-finance studies to prove equivalents avoided. the financial viability of adopting cleaner technologies, such as a study to install a Waste Heat Recovery for 3 MW power generation in a cement Baseline (2010): 0 plant. The study identified potential savings of 21,000 tCO2e/year. Original target (2013): 770,000 Revised target (2013): 1,987,000 Actual (2012): 600,000 (The CPSCR indicators baselines and targets reflect the revised targets for the Sustainable Rural Development additional financing project). COUNTRY PARTNERSHIP STRATEGY FOR 83 THE UNITED MEXICAN STATES COUNTRY PARTNERSHIP STRATEGY FOR 84 THE UNITED MEXICAN STATES CPS Outcome/Cluster of Outcomes Status and Evaluation Summary WBG Activities that contributed to the Outcome Lessons and Suggestions for the new CPS and Outcome Indicators 21. Reduce GHG (CO2) emission Achieved. Financial: La Venta III was one the first wind parks in the Tehuantepec through the adoption of emis- The Bank supports two wind projects in Mexico: La Venta II, through Carbon FY05: Mexico: Waste Management and Carbon Isthmus. It was the slowest to start operations but it paved sion-reduction technologies. Fund financing, and La Venta III, through GEF financing. Both wind farms are Offset Project (P088546) CD: 30-June-2012 the ground for several others to come and set the standards operational. La Venta III (i.e. the wind power Large-Scale Renewable Energy FY06: Large-scale Renewable Energy Devel- in terms of environmental and social safeguards. Indicator: Successful piloting of Development project) started operations in October 2012, after facing many hur- opment Project (Phase 1 = $25M; Phase 2 = As part of the Waste Management project, the alliance renewable energy production with dles, from the failure of the first bidding process for the construction of the plant $45M) - TF056781 (P077717) CD: Jun 2014 between the public and private sector incentivized each part GEF/CN financing. to social tensions which slowed down the entire project. Yet, it is still expected FY11-FY12: MEDEC DPL Approval: FY11; Closing: 06/2012 to guarantee the successful development of the project and that Bank tariff subsidy for the generation of wind energy at La Venta III will FY08-FY11: Lending Climate Change created institutional memory which is important to reduce (The CPSPR indicator did not include contribute to a reduction of around 247,000 tons of CO2 equivalent per year of Development Policy Loan (P110849) the impacts of rotational management but, especially, to baseline and targets. The Bank, however, operation in the upcoming years. La Venta III, however, has paved the way for the ensure that experiences and practices learned are not lost. supported two wind projects in Mexico development of wind energy in Mexico, as it was the first bidding process to be Knowledge: to achieve this outcome: La Venta II, launched for the provision of wind energy under the Independent Power Producer FY09: AAA Low Carbon Development through Carbon Fund financing, and scheme. Today more than 1,300 MW capacity of wind power energy are in oper- Study (P108304 + TF090715) La Venta III, through GEF financing. ation (under the IPP and auto abastecimiento schemes). Prices of wind energy FY11: AAA + Convening Services Renewable These two projects contributed to the have decreased (from US$11c/kWh to US$6c/kWh), demonstrating the commer- Energy Assistance Program (P117870) reduction of GHG through the adoption cial viability of this technology. It could thus be argued that the Bank achieved FY10-FY11: AAA + Convening Services Promoting emission-reduction technologies). its objective of piloting renewable energy production with GEF/CN financing, Mini-Hydro Potential in Mexico (P118293) simultaneously achieving the overall objective or reducing GHG (CO2) emissions. FY11: Grant + Convening Services: ESMAP - Energy Based on these two projects, Sector Mgmt. Assistance program (TF095211) a quantitative indicator for the IFC financed the first two private wind power projects in Mexico, paving reduction of GHG is the following: the way for the expansion of the wind power industry in the country. The projects have a capacity of 250 MW and 67.5 MW each and are expected to (The CPSPR did not include a quantitative reduce greenhouse gas emissions by approximately 600,000 tCO2 per year. indicator for this outcome) Emissions reduced (tons year), over base- line (CO2, NOx, SOx, and particulates). Baseline (2007): 0 Target (2014); 247,000 tons per year of operation Actual (2012): 124,616 tCO2 over the October 2012-August 2013 period, lower than target due to: - lower production - emission factor of Mexican grid (2012:0.4929 tCO2/MWh) is lower than factor used during preparation (0.667 tCO2/MWh). CPS Outcome/Cluster of Outcomes Status and Evaluation Summary WBG Activities that contributed to the Outcome Lessons and Suggestions for the new CPS and Outcome Indicators 22. Promoting Adaptation Achieved and Exceeded. Financial: The model of DPL cum MoU provided an integrated to Climate Change. The Bank tailored knowledge and convening services around a series of FY08-FY11: Lending Climate Change framework within which assistance was provided for climate annual DPLs that successfully supported the Government of Mexico’s effort Development Policy Loan (P110849) change DPLs to the benefit of the entire program. Indicators: (a) National emission under its National Climate Change Strategy to mainstream climate change FY12-FY13: Lending Strengthening Social Resilience to It is unquestionable that many actions, especially reductions target set; consideration in public policy. Proof of this was the approval and publication Climate Change DPL (P120170) - FY12; Closing: 03/30/13 with respect to adaptation to climate change, of the PECC (Special Program for Climate Change) in Mexico’s official Gazette FY10: Optima Energia- Energy service are best addressed at the state level. Baseline (2008): 0 in August 2009, which was fundamental to create a comprehensive policy company ESCO (IFC 28383) The importance of targeting SEDESOL Programs to the Target (2011): Emissions target set framework for reduction of emissions across sectors, and set a national FY11: Comemsa- Solar energy equipment (IFC 30229). most vulnerable municipalities based on comprehensive Actual (2009): The Mexican government emission reduction target. Moreover, state climate change action plans have indicators of sustainability/vulnerability which are Special Climate Change Program (i.e. been completed or they are currently under preparation for 26 states. The five Knowledge: readily available, and relatively easy to update. PECC in Spanish) defined emissions tar- states that have completed and adopted their climate change action plans FY11: Sustainable Energy Finance Mexico (IFC 583007) The strong demand among municipal and state level gets through 2012 and longer term goals. are: Distrito Federal, Veracruz, Puebla, Nuevo León and Guanajuato (2011). FY12 Green building investment across sectors (City government for guidance and advice on the preparation of sus- Express, Vinte, Hospitalaria) through the Leadership in tainable local development projects, and the need to provide (b) At least five states committed to Energy & Environmental Design certification program. practical and interactive learning tools to meet this need adopting a climate change action plan. FY12: AAA Social Impacts of Climate Change (P112024) Implementation of the Programa de Administración de FY13: AAA + Grant Support the Municipality of Othon Blanco Riesgos de Mercado a través de Intermediartios Financieros Baseline (2008): two states for a Sustainable Development Strategy TF097159 (P122021) (PARMIF) represents a positive step towards improving were defining plans FY13: AAA + Grant: MOU Subnational CCH Plans (P105849) the institutional framework, better alignment of public Target (2011): at least five states + State Climate Change Initiatives (TF098962) - FY13 and private incentives, and strengthening the operations committed to CC Action Plan FY14: PKS: Disaster Risk Management Mexico: of government-supported risk management programs. Actual (2011): Completed – State RAS Programmatic Engagement in DRM climate change action plans completed FY13-14: PKS: Agriculture Risk Management in Mexico or under preparation for 26 states. The Agriculture Insurance Market Review (P130161) – FY13 five states that have completed and RAS Agriculture Commodity Risk Management adopted their climate change action in Mexico JIT (P131285) -FY13. plans are: Distrito Federal, Veracruz, Puebla, Nuevo León and Guanajuato (No outcome on climate change was originally linked to the CPSPR Matrix. The PDO indicators of the Climate Change DPL were selected to measure impact of this outcome). COUNTRY PARTNERSHIP STRATEGY FOR 85 THE UNITED MEXICAN STATES COUNTRY PARTNERSHIP STRATEGY FOR 86 THE UNITED MEXICAN STATES CPS Outcome/Cluster of Outcomes Status and Evaluation Summary WBG Activities that contributed to the Outcome Lessons and Suggestions for the new CPS and Outcome Indicators Thematic Area V: Strengthening Institutions 23. Selected Federal departments and Partially Achieved. Financial: The effectiveness of Bank support depends on commitment of agencies providing decision makers Through the support of the Results Based Management project, the Performance information FY09: Results Based Management and Budgeting (P106528) counterparts to implement reforms and change management. and the public with rigorous, timely, was used during the 2013 budget preparation between the Ministry of Finance and line During an election period, the Bank should support a sustainable user-friendly information on the effi- ministries and to Congress. A portal with financial and non-financial performance information Knowledge: reform process thru sensitizations and capacity building ciency and effectiveness of government on budget is now available for citizens. A series of FBSs to the Ministry of Finance FY08-FY12: Public Sector MOU (P101891) – program for management and operational staff. organizations and program expenditures. supported the new Integrated Financial Management System (IFMS) and the implementation CPAR Review (P101733) – FY08 FBS can be a powerful instrument but the Bank needs to avoid over of the SIDAFF (Integrated Mgmt. System). Also, Federal entities and departments such SHCP FBS on IFMS (P106230) – FY08 quantification, and flexibility and adaptation along the way is critical. Indicator: Performance information (PI) pre- as CONEVAL and SEDESOL received Bank’s support to strengthen its M&E systems. Performance Budgeting International Conference (P111122) – FY08 Frequent supervision of the program, both by top authorities and an sented in budget requests from line secretariats FBS for Querétaro (P114425) – FY09 independent audit, will allow concerned parties to anticipate corrective to SHCP and in budget submitted to Congress. SHCP FBS on IFMS II (P103871) – FY10 actions in the face of errors, new challenges or deviations that might SHCP FBS on IFMS III (P120790) – FY11 take place with respect to the results expected in each phase. Baseline (2009): Performance information FBS for PEMEX (P111121) – FY11 Identifying strengths and/or weaknesses of working teams to is not widely used by line secretariats FBS for Public Financial Mgmt. Reform (P126616) – FY12 enhance the former and redress the latter in a timely fashion. in their budget requests. PI is sent to FY08: FBS Results Based Mgmt. & Evaluation Strong ownership from the Government along with an Congress on tight deadlines and in format/ Framework in SEDESOL (P106419) almost inexistent turnover in the staff with responsibilities in content that makes it non-useable. FY08: FBS for Guerrero-State Development (P106210) the project, can lead to a successful implementation. FY08: FBS for CONEVAL: Support to the National Using own country systems, facilitate project execution. Target (2013): PI presented in a timely M&E Agenda in Mexico (P101567) fashion to Congress in a format that allows FY09: Treasury’s Office Reform AAA (P108417) interpretation and meets their needs. Secre- FY12: FBS with PEMEX – Strategic Assessment (P116628) tariats send budget requests to SHCP with PI. FY14: Grant: Strengthening Cash Mgmt. and Control Systems IDF (TF097593): CD: 08/31/13 Actual (2013): PI information used FY14: Grant: Strengthening & Consolidation of Internal Control during the 2013 budget preparation. Framework of Federal Gov’t IDF TF097295 (P120116); CD: 12/21/13 24. Improved administration in Achieved. Knowledge: The online platform demonstrated to be a cost-effective selected municipal governments. Through an IDF the Bank contributed to the establishment of an online space or FY10: Grant: Creation of a Public Observatory of strategy to systematize information, while creating a virtual space information system for the dissemination of successful experiences, training material, Municipal Mgmt. - TF091989 (P109696) to exchange good practices and other valuable knowledge. Indicator: Programs with improved socio-economic information and social demographics. The grant for the creation of a It is essential to create a dissemination strategy and strategic design and reporting. Public Observatory of Municipal Management, took the work developed under a previous provide adequate training on how to maximize the use of the grant (TF051739) and identified areas where local governments could be improved online platform, how to manage the information and databases Baseline (2009): Zero (0) such as their managerial and administrative capacities to generate social and urban and who is responsible of updating the information. Target (2010): 10 new products to be added development. The grant made possible the compilation of these materials and good to the website (studies, course materials, etc.) practices on a public website that other municipalities –not covered by the grant— could Actual (2011): 20 new products reference, and provided the means to, for example, prepare personnel who would further were added to the website. train local public servants in an improved way. This space has helped preserve and share municipal management experiences and innovations. By end-December 2011, 20 new products were added (200% above the 2010 target) to the Municipal Management Observatory website, and in addition, 120 new databases were also incorporated. CPS Outcome/Cluster of Outcomes Status and Evaluation Summary WBG Activities that contributed to the Outcome Lessons and Suggestions for the new CPS and Outcome Indicators 25. Improved efficiency of Not Achieved. Financial: The client’s involvement is key to improving the product. Customs processes. At the request of the GoM, the Customs project was cancelled; hence FY10: Customs Institutional Strengthening Project (P114271) Preparing the CATT with the involvement of the development outcome was not achieved. However, the Bank experts from other agencies and other units of Indicator: Increase in the perception provided support to improve the GoM’s custom processes measuring Knowledge: the Bank was key for project success. by users of the efficiency of the customs performance through the implementation of the CATT. FY11: Customs Assessment Tool for Trade (CATT) – TF095406 services offered by Customs. (No baseline and targets were set: During the May 2011 mission for the Customs Institutional Strengthening Project, a new set of indicators were agreed with counterparts. However, restructuring never took place and the loan was cancelled). 26. Strengthened fiscal transparen- Partially Achieved. Financial: The PKS shows a remarkable milestone in the focalization cy, governance and accountability. With the support of the Results Based Mgmt project, a portal containing FY09: Results Based Management and of the Bank’s PSMG interventions in Mexico. It is financial and non-financial performance information about the budget and its budgeting project (P106528) prioritizing the Bank’s work on public financial management Revised Indicator: An active network process is available for citizens as of end-December 2012. Also, through two at the federal level of government and has opened a and portal to inform society at large IDFs to Congress, the Bank was able to strengthen its institutional capacities Knowledge: new entry point of reform with subnational governments on a regular basis about budget by developing an integrated information management system. By end 2011, FY10: AAA: Accounting Harmonization with the implementation of the Oaxaca RAAP. performance, increasing transparency the system was operating in 12 areas. However, the creation of the monitoring among Subnational Gov’ts (P110047) When working with Congress, implementing the and accountability to citizens. and evaluation system for Congressional performance and technical staff was FY12: PKS in Public Service (P122802) project gradually proved to be the wisest decision not achieved. Several knowledge products were produced that supported the FY11: Grant: Institutional Strengthening of considering the nature of the institution. Baseline (2008): PI is available enhancement of fiscal transparency and accountability at the subnational level. Congress I- IDF-TF058294 (P104290) The Bank is a key development partner in this institutional to civil society via the new Such is the case of the work done in Aguascalientes through an IDF Grant. FY11: Grant: Fiscal Transparency IDF-TF091135 (P104406) environment by contributing to convene the reform among portal but has not been expanded Aguascalientes Trust Fund. the different actors, to provide a safety net against certain to all levels of government. political interests/biases to the reform itself, and, moreover, playing an important role at the fiduciary level since it Target (2013): Portal containing PI helps the institution to prevent potential practices that on budget performance is available for could distort the regular funding and bidding processes. citizens and the information has been expanded to all levels of Government. Actual (2012): By end 2012, a portal was available for citizens, and the information has been expanded to all levels of government. (The original indicator was revised after project was restructured in 2012). COUNTRY PARTNERSHIP STRATEGY FOR 87 THE UNITED MEXICAN STATES COUNTRY PARTNERSHIP STRATEGY FOR 88 THE UNITED MEXICAN STATES CPS Outcome/Cluster of Outcomes Status and Evaluation Summary WBG Activities that contributed to the Outcome Lessons and Suggestions for the new CPS and Outcome Indicators 27. Support the improvement of Partially Achieved. Financial: Institutional reform projects in upper-middle income countries institutional performance of judiciaries. The Bank helped implement the new ICT network that provided timely information on demand FY12: Judicial Modernization (P074755) may be implemented directly by line agencies, sometimes with and supply of justice services in the Federal District Government (GDF). Implementation the support of other agencies experienced in Bank procedures. Indicator: Improved user confidence. of a new management model supported by this ICT platform was completed. Ten user While focusing on internal strengthening, institutional Baseline (2004): cero applications service applications uploaded to the institutional network that served as backbone of the reforms should also pay attention to demands of users or uploaded to the institutional ICT management model have increased user confidence and stakeholder satisfaction in the potential users, in particular from vulnerable groups. network. Low user confidence and tribunal system of justice of the GDF. New ICT network has increased public information Working at subnational level poses additional stakeholder satisfaction in TSJDF services. available. As of Dec 2011, 620,896 judicial decisions were filed in the “Judicial Resolution challenges in a complex sector. Target (2008): 10 user service applications Consultation System” and could be accessed by staff. Access to these decisions by the public Major cancellations and/or reallocations impacting the PDO and results uploaded to the institutional network that was expected by June 2012. Annual statistics reports have been published and disseminated framework must be accompanied by comprehensive restructurings. serves as backbone of the management since 2010. Annual reports are also available on line. There is an online judicial bulletin A realistic assessment of justice sector issues at the early stages of model increase user confidence and that provides the status and location of cases in courts. In the four target criminal judicial preparation process is essential as a basis for quality project design. stakeholder satisfaction in TSJDF services. centers, there are 22 kiosks available to the public for case status consultations. Justice projects should be structured around a problem-solving strategy Actual (2012): 5 applications uploaded to The first survey on user satisfaction was carried out in 2010 by an independent survey firm and should engage all actors required to implement a proposed solution. the ICT institutional platform that provides (EPADEC). More than half of respondents (55%) were satisfied with justice services in DF. Civil society participation is critical at all stages of rapid and reliable decision-making information The level of satisfaction with the image, attention and functioning of the target criminal design and implementation of justice projects. and 22 public kiosks have access to the courts was 63%. Users’ satisfaction reported by this survey was higher than the trust in status of judicial decisions and location of the justice system reported for the whole country by Americas Barometer, LAPOP, in 2010. cases in target courts have increased confidence and stakeholder satisfaction. 28. Improved capacity building Achieved. Knowledge: The importance of developing a solution that could be and communication practices. The Bank helped strengthen and improve the institutional capacity of several institutions FY09: Strengthening of the Federal Institute for customized to solve needs of different actors/governments. such as the Federal Institute for Access to Information (IFAI) and the National Agrarian Access to Information IDF-TF054316 (P090533) The need to closely monitor fiduciary arrangements as well as to Indicator: Timely information made available. Registry (RAN), through the implementation of different grants and knowledge services. FY10: Building an integrated rural cadastral ensure the institutional capacity to manage a Bank project. The IDF supporting IFAI contributed to expand the INFOMEX system to all 31 states. While a information system IDF - TF056996 (P100082) Be cautious when expanding the scope of the activities and consider system for access to information was in place at the federal level, subnational governments FY12: Strengthening Information in the State of Yucatán (TF096286) the different dimensions affected under the new scenario. presented a different scenario. There was a lack of institutional framework and tools to FY10: FBS with Yucatán on SIEGEY (P115917) It is expected that the experience under this FBS and the new provide adequate responses; moreover, the state governments were facing an enlarged FY12: FBS with Yucatán on SIEGEY (P123123) FBS will serve as a model to be replicated in other states. demand for public information in a context of increased openness and democratization. At the time the TF054316 closed, 1,569 entities were operating INFOMEX. At least 30 states, 449 mu- nicipalities, 20 state legislative bodies and 25 state judicial entities have adopted the system. The Bank contributed to improve the design and helped implement the Integrated Rural Cadastral Information System in Colima. The RAN (National Agrarian Registry) was the strategic partner to develop and coordinate and M&E system available to public and private users. Within the scope of the IDF grant (TF056996), it was possible to strengthen the (RAN) capacity to link geographical and legal information and develop a sound technological platform to integrate and analyze data. The Bank also contributed to strengthening the information system in Yucatán (SIEGEY). ••CPSCR ANNEX 2. Evolution of World Bank Lending, FY08-13 Active Closed FY08 FY09 FY10 FY11 FY12 FY13 Thematic Area I: Accelerating Growth P118070 MX Economic Policies DPL • 1,504 P123505 MX Fiscal Risk Management DPL • 301 Total 1,805 Thematic Area II: Improving Competitiveness P106682 MX (AF) Savings&RurFinance SAGARPA • 21 P106589 MX IT Industry Development Project • 80 P111839 MX (AF-C)Savings & Rural Fin 2nd phase • 50 P101369 MX Compensatory Education • 100 P112262 MX Upper Secondary Education DPL • 700 P115347 MX (APL2)School Based Management • 220 P112264 MX Strength. Business Env for EcoGrowth • 752 P123367 MX Savings and Credit Sector Loan • 100 P126297 MX 2nd Prog. Upper Secondary Educ DPL • 301 Total 2,324 Thematic Area III: Promoting Social Inclusion and Reducing Poverty P115067 MX Support to Oportunidades Project • 1,504 P116965 MX Influenza Prevention and Control • 491 P116226 MX Social Protection in Health • 1,250 P122349 MX (AF) Support to Oportunidades • 1,250 Total 4,495 Thematic Area IV: Developing Infrastructure & assuring Energy Security & environmental Sustainability P088996 MX (CRL2) Integrated Energy Services • 15 P101342 MX Affordable Housing DPL III • 201 P110849 MX Climate Change DPL/DDO • 501 P095510 MX Environmental Sustainability DPL • 301 P106261 MX Sustainable Rural Development • 50 P112258 MX Priv Housing Finance Markets Strngth • 1,010 P115101 MXSupplement to Env Sustain. DPL • 401 P107159 MX Urban Transport Transformation Progr • 150 P115608 MX Framework for Green Growth DPL • 1,504 P120134 MX Adapt. Climate Change in WtrSct DPL • 450 P106424 MX Efficient lighting and appliances • 251 P121195 MX Efficiency Improvement Program • 100 P121800 MX MEDEC Low-Carbon DPL • 401 P120170 MX Strengthening Social Resilience to CC • 301 P123760 MX Forests and Climate Change (SIL) • 350 P126487 MX MOMET for Improved Climate Adaptation • 105 P130623 MX Sustainable Rural Development AF • 50 Total 6,140 Thematic Area IV: Strengthening Institutions P106528 MX Results-based Mgmt. and Bugdeting • 17 COUNTRY P114271 MX Customs Institutional Strengthening • 10 PARTNERSHIP STRATEGY FOR Total 27.2 THE UNITED Total per FY 738 3,423 6,369 2,754 1,458 50 MEXICAN Investment Operations Total 14,790 STATES 89 CPSCR Annex 3. Emerging Subnational Engagement – State of Oaxaca 1. The World Bank has also supported since 2011 the sector planning, public investment, water util- reform agenda for inclusive growth of Oaxaca – one of the ity management, forestry management), and states with the highest levels of poverty and the lowest advisory services and initial diagnostics for key levels of economic performance among the Mexican public-private partnerships projects have been States – through a strategic programmatic partnership. provided. The Bank and the Government of Oaxaca signed in June 2011 a MoU, including multi-year, multi-sectoral support b.  The Bank has informed policy design and to the state, combining a package of knowledge, conven- implementation. ing and financial services, structured around four areas: public sector modernization, sustainable development, c.  Resources have been mobilized, leveraging finance and private sector, and human development. co-financing of other organizations, such as the UNDP, the MacArthur Foundation, and 2. In keeping with the flexible design of the CPS, the Transparency International–Mexico. MoU with Oaxaca was developed as an instrument for coordinating AAA, loans, and grants around the critical d.  A concurrence of key national and local development challenges at the subnational level in stakeholders has been brought together to the Mexico. The approach of this partnership is similar to table to participate in a specific development a country’s CPS, and it represents a departure from an agenda. operational or ESW-centric approach to sector dialogue and development solutions. It recognizes the need to e.  Concrete and fundamental tools for efficient retain long-term engagement based on agreed objectives policymaking have been generated. and development challenges not subject to the unan- ticipated changes in financing and knowledge needs 6. Some of the main outputs of this partnership to in particular sectors. In addition, the Bank and IFC modernize the State of Oaxaca’s public institutions and worked together in the identification of the areas where policies have been: (a) design and implementation of a the active engagement of IFC on its own or jointly with methodology to structure strategic sector planning ori- the Bank was needed, leading to IFC providing advisory ented to results; (b) design proposals for an integrated services related to public private partnerships public financial management and public investment management systems; (c) strengthened tax administra- 3. The MoU was originally established for two years, tion capacity; (d) map of existing social programs; (e) 2011-2013, and it was renewed for another two years on exchange of good practice to reduce maternal mortality; June 2013. As a result of this partnership (f) support the consolidation of rural financial institu- COUNTRY tions; (g) exchange of good practice on public–private PARTNERSHIP STRATEGY FOR a.  Technical capacity has been built on the gov- partnerships; (h) strengthen water utility management; THE UNITED ernment counterparts in the different areas of (i) Atlas of Climate and Climate Change; and (j) ex- MEXICAN reform (e.g., training and workshops in strategic change of good practice on sustainable development. STATES 90 Annex 3. Macroeconomic Performance 1. Mexico’s solid economic performance stands out in a 3. Fiscal consolidation and a slow start of public global environment of higher volatility and lower growth. investment further deepened the deceleration of Economic activity fully recovered from the severe con- economic activity. Fiscal prudence continues to enjoy traction experienced following the global financial crisis broad political support as a cornerstone of macroeconom- as a rebound and continued growth of export, domestic ic stability in Mexico with fiscal policy being conducted investment, and consumption managed to close the out- within the framework of the Fiscal Responsibility Law put gap by the end of 2012. A track-record of prudent (FRL). The FRL includes a balanced budget rule with monetary and fiscal policies is providing the framework, an escape clause that allows for a budget deficit under ex- confidence, and buffers required for a continued expan- traordinary circumstances. The latter requires the outline sion of economic activity in line with potential output, of a plan to return to balanced budget. Following the se- which is supported by strong external trade, investment vere contraction in 2009, a budget deficit of 0.8 percent of and financial ties. Progress on an ambitious structural GDP was allowed for 2010 with a three-year timeframe to reform agenda, aimed at enhancing productivity may get back to a balanced budget. In effect, fiscal support has spur investment and eventually raise the level of pro- been gradually withdrawn with budget deficits of 0.6 and ductivity and economic growth in a sustained way. 0.3 percent in 2011 and 2012, respectively, and an initial target for 2013 to return to a zero budget deficit. The 2. The Mexican economy rapidly recovered impact of this consolidation effort on aggregate demand from the impact of the global financial crisis was intensified by a slow start of public investment at and experienced, more recently, a cyclical the beginning of the new administration, bringing public downturn. After a severe contraction following the sector capital expenditures down by almost 7 percent in global financial crisis, resurgence in demand for Mex- real terms during the first half of 2013. In the meantime, ican manufactured exports led to a sharp rebound in the government revised fiscal consolidation plans as economic activity. The output gap, generated by the it intends to maintain the planned level of expenditure 2008-2009 contraction, was expected to be closed to- despite lower-than-expected revenue, thereby allowing wards the end of 2012 after the economy experienced for a budget deficit of 0.4 percent of GDP this year. an average annual growth of 4.4 percent between 2010 and 2012. Moreecently, a global slowdown led 4. Moderation of inflation and inflation expecta- to a significant deceleration of economic growth in tions allowed the monetary authorities to lower Mexico widening the output gap again. Weakening short-term interest rates in support of economic economic growth, industrial production and, in activity. Despite several supply shocks that tempo- particular a stagnation in overall import demand in rarily raised headline inflation earlier this year, overall the U.S. had an adverse impact on growth of Mexican consumer price inflation and, in particular, core inflation COUNTRY manufactured exports as of the second half of 2012. moderately trended down to the medium-term inflation PARTNERSHIP With an improvement of economic indicators in the target of 3 percent. The success in moderating longer STRATEGY FOR U.S., the weak spot in economic activity experienced term inflation and inflation expectation as well as, more THE UNITED in 2013 is likely to be temporary and a rebound of recently, the widening of the output gap led the monetary MEXICAN exports and economic growth is expected towards the authorities to reduce the monetary policy interest rate to STATES end of the year. an all-time low of 3.75 percent, through reductions by 91 50 and 25 basis points each last March and September, 8. Exit from unprecedented monetary policies by respectively. The recent policy move confirms the view advanced economies over the next few years may of the monetary authorities that secondary round effects lead to reversals in gross capital flows giving rise to of supply shocks as well as the pass-through of exchange higher domestic interest rates and a weaker cur- rate depreciation on inflation and inflation expectations rency. Emerging markets, including Mexico, observed a have greatly diminished. surge in gross capital flows over the past few years, partly attributed to unprecedented monetary policies and low 5. Mexico experienced a surge in capital flows that interest rates in major advanced economies. With growth has been largely reflected in an easing of financing in advanced economies accelerating, prospects of a grad- conditions. Net private capital inflows totaled more ual exit from monetary policy support are drawing closer than US$180 billion over the three year period between possibly leading to investors’ portfolio adjustments and 2010 and 2012, equivalent to an annual average of about a moderation or temporary reversal in gross capital flows 6 percent of GDP. A mayor part of these flows, US$100 to emerging markets. The surge in gross capital inflows billion between 2010 and 2012, has been invested in do- to Mexico has been mainly absorbed by offsetting public mestic currency denominated government debt creating a and private capital outflows rather than a significant downward pressure on longer term interest rates as well as deterioration of the current account. Such a financial ad- an appreciation of the currency. The surge of capital flows justment tends to buffer the economic impact of volatile over the past few years did not lead to a corresponding in- capital flows and moderates the required adjustment in crease in the balance of payments current account deficit. real economic activity in case of a sudden capital flow While the economy’s external deficit did show a gradual reversal. Financial adjustment to capital flow volatility increase to 1.2 percent of GDP by 2012 as a result of mainly operates through domestic interest rates and the the economic recovery, significant capital inflows mainly exchange rate creating incentives for offsetting capital led to a substantial accumulation of external assets by flows, diminishing variations in net capital flows. Ex- Mexican public and private economic agents, including pectations about an exit from unprecedented monetary through direct investment of Mexican companies abroad policies by central banks from advanced economies as well as the build-up of international reserves. already led to a sharp steepening of the yield curve and a significant depreciation of the currency over the past 6. Economic growth will recover following few months and financial markets, in the case of Mexico, strengthening of external demand and the im- were able to cope without mayor liquidity pressures or plementation of monetary and fiscal policies in the need for public intervention. Further sharp swings support of economic activity. Following the cyclical in capital flows can be expected as investors react to downturn created by softness in external demand and the withdrawal of monetary support in advanced economies subsequent weakening of domestic private consumption over the next few years. and investment demand, economic activity is expected to rebound led by strengthening of external demand as 9. International reserves and an IMF Flexible the global economy, and in particular the U.S., emerges Credit Line (FCL) enhance credibility of the from the soft patch observed in 2013. Domestic demand policy framework providing economic resilience will be strengthened through supportive monetary and to volatile capital flows. While the major part of fiscal policies, as monetary authorities lowered short-term stabilizing financial adjustment to sudden shift in gross interest rates and the government announced its plans capital flows should come from the buffering behavior for additional spending next year. Economic growth is of private agents to changes in domestic interest rates projected at a level slightly above potential output growth and the exchange rate, international reserves and over the next couple of years, as the output gap generated access to additional resources under the FCL provide by the shallow recession in 2013 will be closed gradually. the means for complementing public sector contribu- tion to financial adjustment in case of extraordinary 7. Next year’s budget includes countercyclical fiscal market conditions. International reserves have been stimulus mitigating the impact on aggregate demand accumulated over the past few years as all public sector of the revenue-enhancing tax reform. In addition foreign exchange transactions are channeled outside of to a budget deficit of 0.4 percent of GDP to be incurred the market through the central bank. The public sector in 2013 (in terms of the FRL), the proposed budget for has been a net recipient of foreign exchange, mainly 2014 anticipates a budget deficit of 1.5 percent of GDP to due to net oil sector revenue, and international reserves provide for a stimulus of economic activity following the at US$172 billion are up by US$80 billion compared widening of the output gap during 2013. Fiscal stimulus is to the end of 2009 (previous to the recent surge in COUNTRY projected to be withdrawn gradually with a budget deficit capital flows) and by US$10 billion over the last twelve PARTNERSHIP STRATEGY FOR of 1.0 and 0.5 percent of GDP in 2015 and 2016, respec- months. Mexico renewed its FCL with the IMF in THE UNITED tively, and a return to a balanced budget by 2017. In terms November 2012 for a two-year period to an amount MEXICAN of the broader Public Sector Borrowing Requirements, the of approximately US$73 billion, providing additional STATES fiscal deficit increases to 4.1 percent of GDP in 2014 and assurance to investors on the adequacy of the economic gradually diminishes to 2.5 percent of GDP by 2017. policy framework. 92 ••ANNEX 3 FIGURE 1. Selected Economic Indicators Economic growth started to weaken as of mid-2012… …as the expansion of exports moderated, followed by consumption and investment Economic Activity Index, IGAE (SA, 2008=100) Aggregate demand, s.a. (2008-I = 100) 115 120 110 110 105 100 100 90 95 90 80 Jan July Jan July Jan July Jan July Jan July Jun July I III I III I III I III I III I 2008 2009 2010 2011 2012 2013 2008 2009 2010 2011 2012 2013 Industry Services Total Consumption Government Investment Exports Despite some recent supply shocks, inflation is maintained on target… ...without major concerns yet about a pass-through of exchange rate volatility. Consumer Price Inflation, annual % Peso-Dollar Exchange Rate 7 15.0 14.5 6 14.0 5 13.5 13.0 4 12.5 12.0 3 11.5 2 11.0 Jan July Jan July Jan July Jan July Jan July Jun July 2011 Jan Mar May Jul Sep Nov 2012 Jan Mar May Jul Sep Nov 2013 Jan Mar May Jul Sep 2008 2009 2010 2011 2012 2013 Headline Inflation Core Inflation The surge in capital inflows is reflected in the holdings of domestic public …with the recent reversal in capital flows leading to increased yields debt held by non-residents… on longer term government bonds. Domestic Public Debt held by non-resident, billion pesos Government Bond Yield, annual % 2000 8.0% 1600 7.0% 1200 6.0% 800 5.0% 400 4.0% COUNTRY 0 3.0% PARTNERSHIP Jan July Jan July Jan July Jan July Jan July Jun July 2012 Jan Mar May Jul Sep Nov 2013 Jan Mar May Jul Sep STRATEGY FOR 2008 2009 2010 2011 2012 2013 THE UNITED Treasury Bills Bonds Total 1-year 10-year 30-year MEXICAN STATES 93 Annex 4. Country Diagnostic: Overview Mexico Policy Notes Mexico Reform Agenda for stabilization, growth in Mexico has failed to converge Inclusive and Sustainable Growth with high-income economies. A reform agenda focused on unleashing productivity could place Mexico on a path to higher long-term growth. Such agenda includes 1. This Annex presents an overview of Mexico’s forth- deepening and broadening the financial system, promot- coming reform agenda from the World Bank’s vantage ing market competition and removing regulatory barriers point (World Bank 2012). It distills the main messages for doing business, liberalizing key input sectors such as in the policy notes that make up this compendium. The telecommunications and energy, reducing labor market purpose is not to provide definitive answers to the many rigidities, developing a workforce with skills for the 21st policy questions likely to occupy the new Mexican ad- century, and boosting innovation. ministration, or to provide a comprehensive account of progress to date and policy recommendations. Instead, it 4. Growth can only be sustained with equity. Re- is to provide a view of the main challenges facing Mexico ducing poverty and inequality should be at the center of in its quest for inclusive and sustainable growth —and the reform agenda. Mexico has made great progress on to propose feasible policy options to address them.36 reforming social policies with its flagship social programs Because implementing them will prove a daunting task that have achieved universal health insurance coverage for any government, prioritization is critical. The analysis (Seguro Popular) and have strengthened social protection in these notes attempts to structure policy priorities with a for the poor (Oportunidades). Over the last decade, the proposed sequencing (short-term policy options, or quick country has also witnessed the rise of an emerging middle gains in the first year; and medium-term reform options, class. Yet, Mexico still faces high levels of poverty and which may take longer to bear fruit). inequality that are also a drag on economic growth. The reform agenda needs to focus on second-generation social policy reforms to develop the skills and the mobility of the Overview workforce, strengthen the performance of existing social protection programs, broaden the coverage of the social 2. In its quest for inclusive growth Mexico needs to protection system to include the elderly and those affected address four main challenges. These key challenges by shocks such as natural disasters and economic crises, are to: (a) increase productivity; (b) ensure that poorer and reduce the middle class’s vulnerability to poverty. segments of society benefit from and are able to contrib- ute to the growth process; (c) combine the economic and 5. A growth strategy that is accompanied by a dete- environmental aspects of sustainable development; and rioration of the environment is likely to be self-de- (d) strengthen public finances and improve government feating. The reform agenda should also promote green COUNTRY efficiency. Achieving these objectives involves technical growth — growth that is efficient, clean, environmentally PARTNERSHIP STRATEGY FOR work and the political challenge of addressing entrenched sustainable and socially inclusive. Mexico, a global THE UNITED interests in the public and private sectors. leader on climate policy, has a long and distinguished MEXICAN record on promoting environmental sustainability and STATES 3. Productivity is central to accelerating growth. managing climate change. But the country’s vulnerability Despite progress on macroeconomic and financial to climate change continues to have negative impacts on 94 some segments of the population and environmental deg- public programs that have been replicated around the radation poses challenges to the sustainability of growth. globe (in areas as diverse as fiscal risk management, social As Mexico continues to industrialize, the incidence of assistance, and climate change). Globalization, urbaniza- pollution and the societal pressures to use water, energy, tion, and democratization have given rise to an emerging and forests will rise. This calls for a green growth reform middle class that demands a modern and responsive state agenda that reduces the environmental footprint of growth — a state that not only ensures macroeconomic stability and optimally manages natural assets. but also provides opportunities for all. 6. Sound public finances and a more efficient gov- 8. Like many other countries in Latin America, ernment are critical for inclusive and green growth. however, Mexico faces challenges in its quest for Mexico is a model of prudent fiscal management and a inclusive growth. It is a country of contrasts — rich global pioneer on public debt and fiscal risk management. and poor states, dynamic urban centers and isolated rural Fiscal policy, through tax measures and expenditure pro- areas, small informal enterprises serving the domestic grams, has a central role to play in promoting productivity, market and large companies competing abroad, top exec- reducing poverty and inequality, and promoting green utives graduated from top universities abroad and youth growth. Yet, the ability of fiscal policy to deliver on these who neither work nor study. goals is constrained by several factors. Non-oil tax collec- tion rates are low — reflecting a narrow tax base, a com- 9. Unlike some major emerging market economies, plex tax system, low citizen’s trust in the state, and weak Mexico has failed to catch up with high-income tax administration capacity of subnational governments economies. It enjoyed macroeconomic and financial that are highly reliant on Federal Government transfers. stability, market-oriented economic policy reforms, open- Mounting medium-term expenditure pressures compound ness to foreign trade and investment, and a “demographic these challenges as oil revenue declines and age-related bonus,” with a rising share of the working-age population public spending rises. This calls for an integrated fiscal over the past decades. But Mexico has not unleashed high and public sector modernization reform agenda that growth rates, failing to close the gap with high-income raises non-oil tax revenue, improves the transparency and economies. Over the past decade the Mexican economy quality of public spending, and strengthens subnational grew at less than 2 percent a year, well below the regional fiscal management. average (4 percent). Its per capita income has remained at about 30 percent of that of the United States.37 By contrast, East Asia’s per capita income, which tripled over Unleashing productivity the past three decades, is currently at about 60 percent of that of the United States (Figure 1). 7. Mexico has achieved remarkable economic and social progress over the past several decades. The 10. Mexico’s trailing productivity partially explains country has become an investment grade borrower with its slow income convergence. The country’s growth has solid global standing in capital markets. It is a model of largely been driven by capital and labor accumulation, not financial and commercial integration and of prudent mac- by growth in labor productivity (average output per worker) roeconomic management. It is also a pioneer of innovative or total factor productivity (combined efficiency of labor ••ANNEX 4 FIGURE 1. Unleashing productivity could help Mexico accelerate growth and converge to higher income levels Per capita income,1980-2011, Growth in income per capita 1960-2012 (GDP PPP per capita, percent of the United States) 1960=100 90 3.00 80 2.75 70 2.50 60 2.25 50 2.00 40 1.75 30 1.50 20 1.25 1.00 COUNTRY 10 PARTNERSHIP 0 0.75 STRATEGY FOR 1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 THE UNITED LAC East Asian Tigers Mexico GDP per capita GDP per worker TFP MEXICAN Source: World Development Indicators / World Bank (April 2012). Source: World Bank estimates STATES 95 ••ANNEX 4 TABLE 1. Mexico Sources of growth (1961–2011), annual average GDP growth Contribution to GDP growth Period GDP Labor Capital GDP per worker Labor Capital TFP 1961-1981 6.8 3.4 5.8 3.3 2.2 2.0 2.5 1982-1995 1.3 3.7 2.2 -2.3 2.4 0.8 -1.9 1996-2011 3.0 1.6 3.9 1.4 1.0 1.4 0.6 Source: World Bank estimates. The methodology assumes a labor augmenting Cobb-Douglass function. Alpha= 0.4; Delta=0.06. and capital). While physical capital accumulation rates Deepening and broadening the financial sector are within reasonable range by international standards, labor productivity and total factor productivity collapsed 12. Thanks to the financial sector reforms imple- during the eighties and have remained low since then. mented over the last decade, Mexico has a sound This explains the limited contribution of productivity to banking system and a diversified set of financial Mexico’s economic growth over the last fifteen years. Total intermediaries. Financial sector oversight has been re- factor productivity is interpreted in the economic litera- vamped and assessments of compliance with international ture as a measure of technological progress and explains supervisory standards note the high quality of the current a substantial share of the per capita income differences financial regulatory and supervisory framework, especial- across countries (Bosworth and Collins 2013: 113-79). ly for the banking sector. Authorities have been pro-active in adopting measures to protect financial sector stability 11. The economic literature offers several expla- from external shocks and endogenous developments; and nations for Mexico’s low productivity growth. An following lessons from the recent global financial crisis, underdeveloped financial system, labor market rigidities, Mexico was among the first countries in the world in cre- high informality, scarce skilled labor, regulatory barriers ating a formal body in charge of systemic risk monitoring. for doing business, and weak innovation and limited Also, in recent years there have been substantial efforts market competition are often cited as binding constraints to improve financial inclusion through the operation of to productivity growth (Hanson 2010). It has proven hard banking correspondent agents, propitiating the use of to establish empirically the relative importance of each new technologies (such as mobile phones) for financial of these obstacles to productivity growth. In the absence transactions, improving financial infrastructure (i.e., of rigorous empirical evidence of the most binding con- collateral registries and credit bureaus), and using public straint to growth, this note argues that making progress institutions and resources to catalyze private sector on several of these obstacles may be a reasonable strategy funding toward small and medium-size enterprises as to accelerate growth, particularly in view of the possible opposed to crowding private sector activity (i.e., through interactions between some of these constraints. The next the creation of an electronic factoring platform and public sections discuss these challenges in greater detail. credit guarantees schemes). ••ANNEX 4 FIGURE 2. A more developed financial sector mobilizing domestic savings and credit could raise productivity Gross Domestic Savings 1970-2011 Domestic credit to the private sector (percent of GDP) (percent of GDP) 45 40 140 127 35 120 30 100 100 89 87 25 80 20 61 60 55 51 15 45 42 45 10 40 31 24 26 5 20 17 COUNTRY 0 0 PARTNERSHIP 1990 20111990 20111990 20111990 20111990 20111990 20111990 2011 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 STRATEGY FOR Korea China Chile Brazil India Colombia Mexico THE UNITED East Asian Tigers Mexico LAC MEXICAN Source: World Development Indicators/ World Bank (April 2012) STATES 96 13. Yet, Mexico’s financial sector remains small for Note 2). High concentration in key sectors of the economy its stage of development, impeding the channeling and restrictive regulation hinder competition and aggre- of financial savings into long-term productive gate productivity growth. Monopolistic behavior results in investments. The market for government debt is deep higher prices, inefficient resource allocation, consumer and liquid, but there are few issuers in the private bond deadweight loss, and disincentives to innovate or invest. and corporate equity markets. The financial system has Similarly, regulatory burden for firms can also increase done a fair job of mobilizing savings in recent years but the costs of doing business. National and subnational continues to lag in risk taking and maturities, limiting its regulations, such as those related to the cost of enforcing contribution to growth. Commercial bank lending focuses contracts and the time needed to obtain licenses and on consumer credit, which has higher intermediation permits, restrict the ability of firms to do business, while margins. Institutional investors, including pension funds monopolistic behavior reinforces inequalities by hurting and mutual funds, hold many of their assets in fixed-in- low-income households disproportionally (refer to Mexico come securities, mostly government bonds. Deepening Policy Note 2). and broadening Mexico’s financial system could support the growth and investment of credit constrained SME’s 15. In recent years, Mexico has made progress and households, raise productivity, and spur growth. Im- in supporting a more competitive business envi- proving creditor rights and insolvency procedures could ronment and streamlining of business regulations. also enhance firms’ access to credit. Continued efforts are Amendments to the Federal Competition Law have been required to foster financial sector development and in- adopted that strengthen the power of the Federal Compe- clusion while maintaining the soundness of the financial tition Agency to investigate non-competitive market be- system (refer to Mexico Policy Note 1). havior as well as to impose more significant monetary and criminal sanctions to deter economic agents from such practices. With regards to the streamlining of business Promoting competition and regulations, progress has been made in facilitating tax streamlining business regulations filing and payment procedures, the elimination of redun- dant testing and certification requirements by recognizing 14. Strengthening competition and reducing the the equivalence of Mexican product standards and cer- costs of doing businesses are key to boost pro- tifications with international ones and the development ductivity. The availability, quality, and cost of inputs of a Single Trade Window that will allow enterprises to in the production process, such as capital, labor and comply with all trade related regulations through a single intermediate goods and services, as well as the cost to electronic platform. operate a business are critical for firm productivity. In international benchmark exercises, including the World 16. But more needs to be done to remove barriers Bank’s annual Doing Business exercise, Mexico at times to competition and reduce the costs of doing busi- stands out for the high cost and/or low availability for key ness. Reforms to promote market competition could focus inputs in the production process (refer to Mexico Policy on ensuring an effective implementation of the Federal ••ANNEX 4 FIGURE 3. Limited competition reduces firm productivity and competitiveness Global Competitiveness Intensity of Local Competition (higuest 1, lowest 142) (highest 1, lowest 142) 0 10 20 30 40 50 60 70 0 10 20 30 40 50 60 70 80 90 100 Korea, United Switzer- 4 20 Korea, United Switzer- 2005 2009 Mexico Brazil Chile China Rep. States land Mexico Brazil Chile China Rep. States land 2012 1 2012 24 2005 1 2009 4 2012 5 2012 18 2005 19 2009 49 2012 24 2012 15 2005 48 2009 27 2012 26 2012 22 2005 27 2009 19 2012 31 2012 36 2005 57 2009 43 COUNTRY 2012 53 2012 48 PARTNERSHIP 2005 59 2009 78 84 STRATEGY FOR 2012 58 2012 THE UNITED MEXICAN Source: Global Competitiveness Index and Table 6.01 Intensity of Local Competition 2011-2012 rankings (World Economic Forum, Global Competitiveness Report). STATES 97 Competition Law; and creating a high-level commission The operation of state-owned electricity companies is with the mandate of recommending the elimination of constrained by federal budget controls and ceilings that anticompetitive practices at the subnational level. The have led to insufficient investment, and political inter- cost of doing business could be substantially reduced with ference in pricing policies and investment priorities. reforms aimed to simplify firm registration procedures, These constraints hamper longer-term prospects for reduce the cost of formal hiring and firing processes and oil and gas supply and the development of downstream ensure effective and prompt contract enforcement. capacity, pipelines and storage facilities to meet rising domestic demand. Similarly, relatively high prices 17. As a network industry, telecommunications for electricity use by the industrial and commercial is critical for promoting firm productivity. The sectors (as opposed to subsidized rates for residential telecommunications sector is undergoing radical techno- and agricultural use) as well as low quality of service logical and regulatory changes throughout the world. In delivery increase the cost of doing business. An energy Mexico, the overwhelming dominance of the incumbent reform promoting greater efficiency and a diversification in the sector has caused improvements to be far smaller of financing sources for investment will enable a more than those observed elsewhere. Penetration of telecom- dynamic energy sector and a more adequate provision of munication services in Mexico still shows a lower level a key production input that could raise firm productivity. and slower growth compared to OECD countries or Latin The energy reform goes hand and hand with fiscal and American peers. In 2010, the penetration rates (number green growth policy reforms. The discussion of the of subscribers per 100 inhabitants) for fixed telephony, fiscal dependence on oil revenues, energy pricing and mobile telephony, and broadband services in Mexico were subsidies, the promotion of energy efficiency and the 18, 78, and 10, respectively, compared to 36, 114, and reduction of greenhouse gas emissions are discussed in 25 in OECD countries, and 21, 106, and 10.3 in Chile. more detail in this compendium (Refer to Mexico Policy This is partly attributed to higher prices and low-network Notes 6, 7, and 10). coverage in rural areas. Using the OECD methodology of representative baskets on consumption, prices for moderate use of mobile phone services exceed the OECD Reducing labor market rigidities average by around 30 percent and fixed-line prices for moderate-use consumer and business services exceed 20. Labor market rigidities constrain the efficient OECD averages by 67 and 82 percent, respectively, in allocation of labor across firms and industries. PPP terms (OECD 2011). Rigid labor market regulations prevent the Mexican labor from working efficiently. The cost of employing 18. Recent reforms sought to improve investment formal sector workers remains high because of fairly and competition in the telecommunications sector. rigid labor market regulations, particularly regarding But a more ambitious reform is required to boost pro- dismissal (Figure 4). Furthermore, severance pay regula- ductivity. Examples of recent reforms include auctions tions likely reduce companies’ willingness to adopt new for the lease of part of the optic fiber network owned by productivity enhancing technologies, for fear of threat to the state-owned Federal Electricity Commission for data job security. While informality is partly a reflection of transmission and for the use of radio spectrum for mobile Mexico’s stage of development and of labor market rigid- telephony, as well as a program to support the reduction ities, the large number of informal firms reinforces low of interconnection rates for mobile telephony termination. productivity levels. Lower wages in the informal sector Additional regulatory interventions are needed to facili- reflect a productivity gap, resulting from credit and tech- tate entry in the telecommunications sector. Eliminating nology constraints, limited access to employee training, restrictions to foreign ownership and developing an and a bias against growth in order to continue to hide integral and transparent interconnection policy are key their activities. Addressing regulatory hurdles in hiring elements of the reform agenda. In the event that such and firing workers, reducing formalization costs and, measures fail to increase competition, sector regulators strengthening unemployment insurance could improve could be given the power to break up companies with labor market efficiency and enhance productivity (refer monopolistic power whenever they abuse their dominant to Mexico Policy Note 4). position in the market. While such powers are difficult to implement in practice, the mere threat of being able to do so could induce more competitive behavior. Promoting innovation 19. Opening the energy sector to private partic- 21. Boosting innovation in Mexico is critical for COUNTRY ipation in core activities could also contribute to growth and productivity. Empirical evidence suggests PARTNERSHIP STRATEGY FOR productivity growth. Dominating Mexico’s energy that sustained productivity growth is contingent upon THE UNITED sector, state-owned companies, as a result of being increasing knowledge generation and absorption.38 Inter- MEXICAN insulated from meaningful competition, have been slow mediate indicators for innovation, such as investments in STATES to adapt and innovate in response to changing market research and development (R&D), technology licensing, conditions, technologies, and management practices. and patenting, suggest that Mexico faces an innovation 98 ••ANNEX 4 FIGURE 4. Labor market rigidities, in particular dismissal costs, remain high Labor costs (Higher values in dicate higher labor costs) Employment Rigidity Index (Higher values indicate higher rigidity) 50.00 Cost of increasing hours 45.00 wroked 40.00 1.00 35.00 Unemployment Benefits 0.75 Costs of firing workers 30.00 0.50 25.00 Sickness and health 0.25 20.00 Dismissal procedures 15.00 Benefits 0.00 10.00 Alternative employment 5.00 Old Age, Disability 0.00 and Death benefits contracts rld fic ia an a a) ia a CD dC S a) o fric fric xic an BRIC As As ad hin be aci OE Wo Me an hA nA rib al th &P nt r dC u Ca ort ara So ia Ce an he &N ah ia As Collective Disputes Labor Union Powers & (US Ind dt b-S t t pe Eas an Eas a, Su ca ro ssi ca Eu eri le eri Ru dd Am Am Mi zil, rth in a No (Br L at Mexico Canada USA Dificulty of Hiring Rigidity of hours Rigidity of Redundancy Index (0-100) Index (0-100) Index (0-100) Source: Botero and others (2004: 1339-82). Source: Doing Business 2012: Doing Business in a More Transparent World (IFC). ••ANNEX 4 FIGURE 5. Low investments in innovation and weak scientific institutions hinder productivity Research and development expenditure, 2009 Quality of scientific institutions, 2011 (percent of GDP) (survey of entrepreneurs, scale 1-7) 3.7 7.0 3.4 6.5 6.0 5.5 5.0 1.7 4.5 1.2 4.0 3.5 0.7 0.8 3.0 0.4 2.5 2.0 Mexico Poland Turkey Brazil China Sweden Korea Mexico Chile Brasil China Korea Israel Finland United States Quality of Scientific Institutions Collaboration University-Firms Source: World Bank estimation. OECD (2009). Global Competitiveness Report 2011-2012 (World Economic Forum). shortfall. Investments in R&D remain low relative to between universities and businesses. Policy reforms countries with a similar GDP per capita: 0.4 percent of to promote innovation started with the enactment of the GDP in 2009, well below other emerging markets such Law on Science and Technology in 2002. These reforms as Brazil and China and even farther below such top were followed by programs that sought to encourage innovators as the Republic of Korea and Sweden (Figure technology transfer and R&D by private firms. In 2009, 5). Furthermore, Mexico has yet to fully exploit the oppor- subsequent amendments to the Science and Technology tunities that its proximity to the United States offers for Law expanded its scope to incorporate business innova- technological progress and productivity. Despite the long tion as a key policy objective; and to remove regulatory history of computer assembly in Mexico for U.S. compa- constraints to technology transfer. Going forward, the nies, there is little indigenous patenting or evidence of challenge is to strengthen the capacity of public re- new startups or spillovers, as in Korea. The quality of search centers for technology transfer activities to take scientific institutions and collaboration between universi- root. Sectoral programs to encourage applied research COUNTRY ties and firms also remains below a number of comparator have been put in place as well as increased investment PARTNERSHIP countries (refer to Mexico Policy Note 3). in human capital to improve the quality of scientific STRATEGY FOR institutions. Further resources need to be devoted to THE UNITED 22. The reform agenda to boost innovation increase R&D funding, improve the quality of R&D MEXICAN seeks to raise public R&D, improve the quality programs and develop monitoring and evaluation tools STATES of scientific institutions, and strengthen links to assess their impact. 99 Developing worker skills and constraint to labor demand and firm expansion. facilitating job matching Socio-emotional skills have increasingly been promot- ed, as reflected in the recent Upper Secondary School 23. Mexico has achieved near universal primary Reform. But they are not sufficiently valued and taught school completion, but it lags its Latin American by the skills development system. Roughly one-third of and Caribbean (LAC) and OECD peers in higher firms consider inadequate worker skills an obstacle to education enrollment. While 35 percent of the Mex- firm expansion, and more than two-fifths struggle to fill ican labor force has completed secondary school, more vacancies for low-skilled jobs (compared with 31 percent than 70 percent of OECD workers have done so (Figure on average in other countries). While employers continue 6). Despite a 50 percent increase in tertiary education to demand cognitive (numeracy, literacy, problem-solv- enrolment over the past decade, current enrollment rates ing) and technical skills, a recent survey found that 40 of 30 percent lag behind the LAC average (37 percent). percent of Mexican firms identified socio-emotional skills Enrolment rates in vocational training programs in (such as communications, customer relations, teamwork) Mexico are half of those in Brazil and Colombia and as the most difficult skill set to find (refer to Mexico only one-fifth of those in Turkey and Poland. In addition Policy Note 4). to improving the coverage of education and training programs, Mexico needs to strengthen the quality of 26. Productivity is also constrained by inefficient education. matching of workers and firms. More than half of Mexican workers find their jobs through family, friends, 24. Mexico’s performance on international cog- and other personal contacts. This informal matching nitive skill tests has improved over recent years. mechanism likely results in the misallocation of skills But, it lags behind OECD peers; and the quality of the and lowers productivity. Public spending on job interme- skills development system remains low. Over the past diation services is lower in Mexico than in other OECD decade, the performance of Mexican students on the countries. The absence of unemployment support may be PISA international learning test (measuring largely responsible for quick rather than efficient job matches. cognitive skills) has improved. But Mexico still lags Reform options for addressing these challenges include behind its peers. Among the 14 countries, with a sim- a national strategy for building labor market–relevant ilar GDP per capita as Mexico, that applied the PISA skills; continued reorientation of upper-secondary school test, Mexico ranks 10th in reading and 11th in math toward the labor market; portability of skills across the and science tests (Figure 6). Going forward, Mexico education, training, and labor market systems; and facil- needs to improve its skills development system, both itating job search and matching by developing integral in schools and training institutions, to provide workers employment services, including unemployment insurance with the broad set of skills required to innovate and (refer to Mexico Policy Note 4). compete globally. 25. Mexican firms report skill mismatch in cog- nitive, technical, and social-emotional skills as a ••ANNEX 4 FIGURE 6. The low quality of education hinders innovation and productivity Educational quality relative to income per capita 90 82 82 600 80 75 70 69 73 68 73 60 45 52 50 500 PISAscore, 2009 35 41 40 30 26 21 23 20 11 400 Mexico 10 0 Share of 25-64 Upper secondary 15-19 years old 20-29 years old years-old with at graduation rate Enrolment rate COUNTRY least upper 300 PARTNERSHIP secondary 0 10,000 20,000 30,000 40,000 50,000 60,000 STRATEGY FOR THE UNITED Mexico Brazil Chile OECD Gross National Incom (GNI) per capita (U.S. Dollars, PPP), 2009 MEXICAN STATES Source: OECD (2011); PISA (2009). 100 Reducing poverty and inequality — global food price crisis, global financial crisis, the AH1N1-flu epidemic, natural disasters, and a recent wave 27. Low productivity growth is linked to high levels of drug-related crime — that slowed economic growth. of poverty and inequality. Inequity of opportunity in access to key economic and social services (such as 29. The recent increase in poverty was largely education, credit, and infrastructure) prevents a large driven by a rise in urban moderate poverty. As of segment of the Mexican population from fully realizing 2010, poverty rates are higher in rural areas (with 6 out their economic potential. This reduces productivity of 10 households in rural areas are poor), but the largest and slows growth, and perpetuates existing poverty and group of people living in poverty is located in urban high-income inequality. Breaking this vicious circle is areas — 35 million people in urban areas compared to 17 difficult and requires an integrated reform agenda focused million people in rural areas based on multi-dimensional on economic and social objectives that are mutually rein- poverty measures (CONEVAL, 2011). The sharp increase forcing (Bourguignon and Dessus 2009: 45-69). in urban poverty that began in 2008 is at the center of the social policy and labor market reform debates. Stagnant 28. Poverty in Mexico remains high and increased real wages and higher unemployment and underemploy- in recent years. Between 2006 and 2010, the moderate ment likely drove the increase in moderate urban poverty poverty rate increased from 42.7 percent to 51.3 (to 57.7 from 2008 to 2010. At the same time, safety nets in urban million people) and the extreme poverty rate from 13.8 areas are not as well targeted as those in rural areas. The percent to 19.8 (to 21.2 million people). The increase in Temporary Employment Program (Programa de Empleo poverty, in 2008 and 2010, broke a decade-long trend of Temporal) focuses mainly on rural areas. It was expanded poverty reduction. In 2010, 57.7 million people suffered to urban areas in 2009 but could not prevent the increase from patrimony poverty, 12.2 million more than in 2006 in urban poverty. The flagship social protection program (Figure 7). Until 2006 Mexico kept pace with the rest of Oportunidades was not designed to quickly sign up tran- Latin America and the Caribbean in poverty reduction. sient populations that may fall into poverty when a crisis But since 2008 the economy suffered a series of shocks hits. ••ANNEX 4 FIGURE 7. Poverty, inequality, and the vulnerability of the middle class increased in recent years 80 60 70 58 56 Poverty head count (%) 60 54 Gini coefficient 50 52 40 50 30 48 46 20 44 10 42 0 40 1992 1994 1996 1998 2000 2002 2004 2005 2006 2008 2010 1992 1994 1995 1996 1998 2000 2002 2004 2006 2008 2010 Extreme Poverty Moderate Poverty Source: CONEVAL (2012). Source: From 1992 to 2006, World Bank (2012b); from 2008 to 2010, CONEVAL (2012). People living on US$ 4-10 a day People living on US$ 10-50 a day 50 50 44.15 Middle class head acount (%) 39.82 40 Vulnerable head count (%) 40 37.95 30.94 30 34.15 30 23.01 26.32 20 20 19.23 10 10 COUNTRY 0 0 1992 1994 1996 1998 2000 2002 2004 2005 2006 2008 2010 PARTNERSHIP 1992 1994 1996 1998 2000 2002 2004 2005 2006 2008 2010 STRATEGY FOR Mexico Latin America and the Caribbean Mexico Latin American and the Caribbean THE UNITED Source: CEDLAS (2012) and World Bank (2012).* MEXICAN * Note: Vulnerable individuals are defined as those individuals with a per capita income of US$4-10. Middle-class individuals are those with a per capita income of US$10-50. Per capita income is expressed in international prices STATES Source: CEDLAS (2012) and World Bank (2012b). (2005 US dollars, PPP terms). 101 30. Inequality and the vulnerability of the Mexican inclusive growth. In Mexico, most of the decline in middle class have also risen. Over the last decade, poverty over the past decade was driven by demographic Mexico has seen the emerging rise of the country’s factors (the increase in the adult population). In contrast, middle class.39 However, the vulnerability of the middle for Latin America the rise in labor income was the main class to shocks and downward economic mobility is at the contributor to poverty reduction (Figure 8). Since 2008, center of economic policy debates. Following the recent the labor poverty trend index (a leading indicator of pov- global economic crisis per capita income growth (2008- erty which tracks the number of individuals who cannot 2010) turned negative for all income deciles (by more obtain the basic food basket with their labor income) than 2 percentage points). The largest income losses were has been on the rise, suggesting that poverty is likely to for those in the top and bottom of the income distribution, remain high. To reduce poverty and inequality, Mexico’s with those in moderate poverty experiencing the smallest reform agenda needs to address several related challeng- loss. Limited social security coverage (limited unemploy- es: (a) labor market failures that hinder the creation of ment insurance and high out-of-pocket health spending) more and better jobs; (b) the impact of natural disasters explains Mexico’s middle-class vulnerability to fall back and economic crises on the poor; (c) lack of protective into poverty when a crisis hits. The expansion of social measures to reduce households’ vulnerability; and (d) programs, targeted at the lowest-income households, has regional disparities reflected in unequal opportunities in not been accompanied by an increase in social security access and quality of basic social services. insurance for those vulnerable groups earning incomes above the poverty line (Torche and López-Calva 2010). Promoting labor markets for inclusive growth 31. Regional income disparities remain a concern. Income per capita in the richest state was 6.7 times that of 33. Mexico faces challenges as it seeks to develop the lowest in 1950, and 6.1 in 2000. In 2010 the state with a labor market that protects workers, creates more the highest moderate poverty was Chiapas (78.4 percent), and better jobs for men and women, and improve followed by Guerrero and Oaxaca (each at 67.2 percent), their long-term standard of living. A move toward while Nuevo Leon had the lowest (28.7 percent). Income labor formalization, institutionalization of universal social disparities across Mexican municipalities are also large. protection, and improved education and skill devel- In addition, access to and quality of public service deliv- opment for all workers could contribute to higher labor ery also varies significantly across regions. The states and productivity and economic growth. municipalities with higher poverty rates tend to be those more prone to crime and/or natural disasters, and those 34. Labor is the main source of income for most where the population is spread in mountainous locations of the population, particularly for low-income with limited accessibility to basic social services. households.   The reliance on labor income by low-in- come households reinforces the importance of promoting 32. The rise in poverty and vulnerability, under- a dynamic labor market that can contribute to poverty scores the urgency of a reform agenda focused reduction.   While labor income has been the main on reducing the inequity of opportunities through driver of poverty reduction and upward mobility in Latin ••ANNEX 4 FIGURE 8. Labor income drove ••ANNEX 4 FIGURE 9. A leading indicator poverty reduction in Latin America and to a of poverty tracking individuals with labor much lesser extent in Mexico (2000–2010) incomes insufficient to obtain the basic food basket- has been on the rise (2005-2011) 50% 46% 41% 1.30 40% Labor Poverty Trend Index (LPTI) 30% 23% 23% 1.20 20% 13% 14% 11% 11% 10% 10% 7% 7% 6% 1.10 5% 3% 0% -2% 0% -0% MEXICO LAC 1.00 -10% COUNTRY PARTNERSHIP -20% -16% STRATEGY FOR Adult population Occupation share Labor income per hour 0.00 01 02 03 04 01 02 03 04 01 02 03 04 01 02 03 04 01 02 03 04 01 02 03 04 01 02 03 04 01 THE UNITED Hours worked Capital Pensions 2005 2006 2007 2008 2009 2010 2011 MEXICAN Transfer Other Non-labor Residual 2012 LPTI National LPTI Urban LPTI Rural STATES Source: World Bank estimates; Azevedo and others (2012). Note: Moderate poverty at US $4/day (PPP 2005). Source: CONEVAL 2012. 102 America, it has not delivered similar results in Mexico. improving social protection. Due to the importance of Between 2000 and 2010 it only contributed 23 percent labor income for lower-income households, social inclu- to the decline in moderate poverty in Mexico compared sion should be fostered through interventions that help to 41 percent in the region (Figure 8). Gender disparities the most vulnerable groups acquire labor market-oriented in labor income remain, with female workers earning on skills and access the labor market. More generally, the average 20 percent less than their male peers (World Government should aim to strengthen skills development Bank 2012c). through education and training services, improve em- ployment intermediation services, address labor market 35. Mexico’s large informal sector reinforces rigidities, and promote active labor market programs. The inequality. The mobility between the formal and the in- agenda also needs to strengthen the social protection sys- formal labor markets provides a buffer against unemploy- tem, in particular unemployment insurance, for the poor ment during economic downturns. But informality limits and the non-poor vulnerable to sudden income losses in the Government’s public spending capacity and restricts a crisis. social insurance benefits. The prevalence of informality leaves approximately half the workforce outside the social security system, thereby exacerbating inequities. During Improving social protection the 2008 financial crisis, only workers with access to the formal pension system were able to use early withdrawal 39. Despite recent progress, social protection from retirement accounts as a protective mechanism to faces important equity and efficiency challenges. smooth consumption. The informal workforce also gen- Mexico’s social protection system includes several erates fiscal pressures for the Government. On the one contributory social security schemes, social assistance hand, it results in a narrow tax base. On other hand, the programs, and labor market programs. Social protec- Government needs to fund a parallel set of non-contrib- tion programs such as Oportunidades are globally rec- utory social programs for the informal sector. Programs ognized as quite successful. But the social protection seeking to protect informal workers can have unexpected system as a whole suffers from fragmented programs, implications since they can make informality more attrac- weak design, and gaps in coverage (refer to Mexico tive for new entrants and lead to a reallocation of workers Policy Note 5). to lower productivity activities. In spite of the economy recovery since 2010, informality rates have remained 40. The social protection system remains frag- constant with two in every three new entrants to the labor mented. In health insurance the different contrib- market being informal. utory schemes and the Social Protection System in Health operate in parallel with little coordination. 36. Recent economic shocks added to existing la- Each scheme has its own funding source, insurance pool, bor market pressures. Labor supply is outpacing labor administration structure, financial reserves, and service demand. Higher than expected population growth, a 5 provider network — resulting in large inefficiencies. For percent rise in labor force participation rates since 2005, labor markets, programs overlap and are duplicative. and a sharp reversal in migration to the United States have At the federal level, 63 programs and actions promote significantly increased the labor supply. Before the 2008 income generation and economic well-being, many with crisis, the Mexican economy was able to absorb labor the same goals and target populations (mostly indigenous supply, maintaining steady and fairly low unemployment. and rural). However, in the second half of 2008 and in 2009 a gap opened between labor supply and labor demand. By 2010 41. The social protection system faces weaknesses employment growth once again matched labor supply, but in the design and targeting of programs. Mexico has the gap remains. gained experience in targeting social protection programs to the poor (Oportunidades and Seguro Popular). But some 37. Labor force composition has shifted toward social programs (such as the energy subsidies) continue to lower-quality jobs. The share of the workforce in disproportionately benefit the wealthiest while absorbing tradable sector jobs declined since 2005 but increased in a large share of resources. Other programs are regressive non-tradable services — the latter characterized by low by design, such as the Employment Subsidy Program productivity. Despite the economic recovery, real wages (Subsidio para el Empleo), which covers only formal sector have remained stagnant and even fallen; in 2010 they workers (less than 5 percent of the subsidies go to the still remained around 90 percent of their 2008 levels. poorest household decile). The number of jobs paying below two minimum wages, up COUNTRY during the crisis, represents the highest share of all jobs, 42. Even the most successful programs suffer from PARTNERSHIP unlike previous years where jobs paying between two and inefficiencies. An organizational and functional reform STRATEGY FOR three minimum wages were most common. of health insurance schemes, in particular related to the THE UNITED separation of financing and provision, as well as provider MEXICAN 38. The reform agenda should focus on increasing payment mechanisms to allow strategic purchasing STATES worker skills, addressing labor market rigidities and could strengthen performance. Using production-based 103 payments more would offer incentives for providers to 46. Mexico has a long and distinguished record on decrease inefficiencies while improving quality, particu- many aspects of environmental sustainability and larly if purchasing across different schemes becomes the climate change. The country is widely recognized as a norm. Oportunidades would benefit from reviewing those global leader on climate change and is a pioneer among conditions that originally motivated the program and developing countries in climate change policy and negoti- making appropriate adjustments, including the need for ations. The country’s comprehensive strategy for climate greater focus on promoting the employability of benefi- resilient, low-carbon economic growth is one of the most ciaries, support to those living in disaster-prone regions, ambitious in the world. efficiency in urban areas, and mechanisms of intervention in indigenous areas. 47. Yet, the country’s vulnerability to climate change remains high, especially in the rural ar- 43. Gaps in coverage particularly affect the poor eas. Mexico is experiencing longer and hotter periods and vulnerable and those in the informal sector. resulting in droughts, more intense rains and hurricanes, Employment services, which promote employability and frequent flooding, and mudslides. Environmental change intermediation, have limited coverage, while important is having, and will continue to have, disproportionally gaps persist in urban and peri-urban areas. The pension negative effects on poor and indigenous groups who system also poses challenges. Only 7 percent of those depend on climate-sensitive sources of income. A World age 65 or older in the poorest decile receive a pension, Bank study found that “Estimates of the macroeconomic compared with 41 percent in the richest. The recent cost of climatic natural disasters suggest that on average, expansion of noncontributory programs — such as 70 y each of them causes a 0.6 percent reduction in real GDP más and Seguro Popular — address some of the gaps, but per capita. To the extent that, since the 1990s, such they remain insufficient to ensure full old-age protection. events have taken place on average once every three While some instruments can protect households in times years—compared to once every four years in the period of emergencies or crises, the Social Protection System since 1950—their average impact on the affected coun- lacks the full range of mechanisms to mitigate the nega- tries would be a 2 percent reduction in GDP per capita tive impact of economic shocks. per decade” (De la Torre and others, 2009: 4). 48. As one of the largest contributors of carbon Promoting Green and dioxide (CO2) in Latin America and the Caribbean, Inclusive Growth Mexico has adopted an ambitious plan to drive down GHG emissions. Mexico ranks 12th in the world in CO2 emissions (with 471.46 million tons CO2 44. While inclusive growth is central for income emissions)40 (Figure 10). The climate change agenda in- convergence and poverty reduction, the environ- cludes partnership with the states as well as the recently ment, and the use of the country’s natural resources approved General Climate Change Bill (Ley General de must be recognized as an integral part of Mexico’s Cambio Climático), which calls for a 30 percent CO2 reform agenda. It is widely recognized that economic reduction by 2020 and a 50 percent reduction by 2050 growth is a critical driver of social and human develop- (compared with 2000 level). ment. But international experience has demonstrated that it is often accompanied by the deterioration of the local 49. In spite of Mexico’s commendable perfor- and global environment, while adversely impacting the mance on the global and domestic climate agenda, poorest and most vulnerable members of society. This local environmental pressures continue to rise. One highlights the importance of a green growth agenda that commonly used aggregate indicator is the Environmental mitigates environmental damage while ensuring sustain- Performance Index (EPI), which is a summary of 25 able and inclusive development (Hallegatte and others, different measures of environmental pressure.41 The EPI 2011). combines air and water pollution estimates, resource depletion, and aspects related to policy and institutional 45. Green growth is defined as growth that is frameworks. As with any broad measure, there are prob- efficient, clean, environmentally sustainable, and lems with aggregation and interpretation, but the EPI is socially inclusive. While sustainable development is a useful starting point to assess how countries perform often treated as a longer-term objective, green growth is relative to their peers. Latin America scores well relative the short term path to this longer-term objective, with a to other developing economies, and Mexico is a mid-range focus on more immediate concerns. The green growth performer within the region (Figure 11). COUNTRY approach is concerned with what needs to occur in the PARTNERSHIP STRATEGY FOR short term (over the next 5-10 years), before the world 50. Mexico has adopted innovative reforms to pro- THE UNITED gets locked into patterns that would be irreversible and mote green and inclusive growth. Policy innovations MEXICAN extremely expensive to modify, and it aims to maximize such as the Green Mortgage Program (Hipoteca Verde) have STATES synergies and economic co-benefits (Hallegatte and unleashed market forces in the service of environmental others, 2011). efficiency. The Green Mortgage Program offers loans for 104 ••ANNEX 4 FIGURE 10. Mexico is a large contributor to global CO2 emissions (mostly driven by the energy sector, including transport, energy generation, manufacturing and industry) (mostly driven by the energy sector, including transport, energy generation, manufacturing and industry) 500 471.46 Waste, 450 14.3% 400 368.32 350 Land use change 300 and forestry, 9.8% 250 Energy Sector, 200 183.73 59.9% 165.55 Industrial 150 processes, 9.7% 100 71.71 63.44 50 42.99 13.19 0 Agriculture, 6.3% a ia l ile ia o ru la azi tin xic liv mb zue Pe Ch Br en Me Bo lo ne Arg Co Ve Source: Mexico: Fourth National Communication of Mexico to the United Nations Framework Convention on Climate Change / Secretaría de Medio Ambiente y Recursos Naturales, Instituto Nacional de Ecología (2009); UNDP (2007). Figure 22. Energy and Environment. – In: Human Development Report 2007-2008: Fighting Climate Change: Human Solidarity in a Divided World. Note: World Bank estimations based on 2006 data. ••ANNEX 4 FIGURE 11. Mexico is a mid-range environmental performer in Latin America EPI Scores by Region. EPI Scores: Mexico and Latin American and Caribbean Countries. 80 100 71 70 90 86.4 61 63.5 78.1 58 80 76.8 73.3 71.4 69.9 69.8 60 54.3 54.3 69.3 69.3 69.1 68.4 68.2 67.3 70 63.5 63.4 62.9 61.0 47 59.2 59.1 58.4 58.0 50 57.1 60 54.2 54.0 49.9 40 44.3 50 39.5 30 40 30 20 20 10 10 0 0 Africa Est Asia Europe Latin MENA South CECD Costa Rica Cuba Colombia Chile Panama Belize Antigua and Barbuda Ecuador Peru El Salvador Dominican Republic Suriname Mexico Paraguay Brazil Venezuela Argentina Guyana Uruguay Jamaica Nicaragua Trinidad and Tobago Guatemala Honduras Bolivia Haiti World Avg. and Pacific and America Asia Central and Asia Caribbean Source: Yale University (2012) and World Bank estimations. Note: Higher scores indicate better environmental performance. the installation of green equipment accessory packages on common property natural resources such as water and (such as solar heaters, low-energy bulbs and low water forests will continue to rise, enhancing the need for policy consumption toilets and faucets). Initially designed as an innovation and stewardship. addition to the regular mortgage loan, the Green Mortgage Program has evolved and now also applies to remodeling, 52. Greening growth requires reducing the en- expansion, and construction activities. The program vironmental footprint of the urban economy. In began in March 2008 and was modified in 2011 in an at- particular, the following pending policy issues related to tempt to broaden the choices to select accessory packages land use planning, waste collection, urban pollution, and and hence promote greener consumption patterns. Before energy efficiency should be addressed (refer to Mexico 2011 the program package was fixed and depended on Policy Note 6): climatic zones. Currently the beneficiary can either buy a house with installed equipment or chose the equipment to • Urban planning. Mexico is a highly urban- install in the house. ized country. Reducing the resource intensity of current urban development might lead to sig- 51. Going forward, two critical policy concerns nificant efficiency gains, and an improvement COUNTRY need to be addressed to promote greener and more of economic activities, thus enhancing the PARTNERSHIP inclusive growth – tackling the environmental foot- efficiency and quality of growth. Urbanization STRATEGY FOR print (externalities) and managing natural assets also has negative externalities that impact THE UNITED under pressure. As Mexico grows and industrializes and adversely affect quality of life, environ- MEXICAN further, so too will the incidence of pollution if there are mental sustainability, and exposure to natural STATES no compensating policy responses. Similarly, demands disasters, mainly for the most vulnerable. 105 Addressing these externalities (in an economi- 53. Green growth also requires managing the cally appropriate manner) would yield a double use of natural resources optimally. Progress and dividend — efficiency and economic gains in challenges regarding forests, water management and the terms of improved land use management and energy sector include the following (refer to Mexico Policy greater productivity and resilience. Note 7): • The brown agenda. Although Mexico has • Forest and biodiversity management. developed good environmental legislation and While Mexico’s forests have long been valued protection strategies related to waste manage- as a source of timber, they are increasingly ment,38 these are not being adequately imple- being appreciated for their role in helping to mented, especially at the local level. There are regulate the environment. Mexico ranks twelfth still important gaps, including an insufficient worldwide in forest cover, with 33 percent of its number of solid and hazardous waste disposal area being classified as either forests or “wood- facilities; municipal sewage and industrial ed land” (FAO 2010). Poverty is widespread in effluents polluting rivers in urban areas and forest communities, owing to degradation (the costal environments; and serious air, water, usual common property problem) as well as and land pollution especially in urban centers. market failures that do not recognize the value Contaminated sites can result in significant of environmental services generated in forests. human health impacts, often associated with Hence stewardship of forests and biodiversity poor or marginalized communities. must continue to rank highly on the policy agenda. • Energy efficiency. Energy is one of the most important sectors in the Mexican economy. • Water management. Reduced water avail- First, oil revenues contribute at least one-third ability and poor water quality are two of the of the federal budget, yet oil production and main factors that will affect economic growth reserves have been steadily declining. Second, and development in Mexico. Water resources being state owned and financially constrained in Mexico are scarce and heterogeneously by the federal budget ceiling, the energy sector distributed across the country, with the bulk has been limited in terms of technological prog- of the water supply concentrated in the south ress, corporate practices, and pricing policies. while the population and demands are greatest Third, energy consumption and production in the more arid north of the country (Figure contribute over 60 percent of Mexico’s total 12). About 63 percent of the supply comes GHG emissions. Enhancing energy efficiency from surface water sources, and 37 percent would improve the country’s competitiveness is from groundwater sources (CONAGUA, and mitigate the fiscal burden from energy 2011). Despite steady improvements in water subsidies, as well. However, energy policies management across the country, there is ample involve crucial economic, environmental, and evidence of the costs associated with poor social tradeoffs; so paying close attention to this water governance and includes diseases, rising issue should be a high priority going forward. costs of alternative sources, and the costs of the ••ANNEX 4 FIGURE 12. Spatial Water Challenge in Mexico (most of the water supply is concentrated in the south while water demand is greatest in the more arid north of the country) (most of the water supply is concentrated in the south while water demand is greatest in the more arid north of the country) 100% 90% 23% 20% North, Center and 80% Northwest 1,734 70% m3 / person / year 69% 60% 50% Southeast 13,097 40% 77% 80% m3 / person / year 30% 20% 31% COUNTRY 10% PARTNERSHIP 0 STRATEGY FOR Natural average Population GDP availability THE UNITED MEXICAN North, Center and Northwest Southeast STATES Source: World Bank estimations based on Atlas del Agua (CONAGUA 2011). 106 implicit electricity subsidy to Mexican farmers Improving service delivery and the (Muñoz Piña and others, 2006). But it is the quality of expenditure management unsustainable extraction of groundwater that remains by far the biggest unresolved chal- 56. In recent years Mexico has undertaken a lenge in Mexico. number of important initiatives to improve the quality of expenditure and service delivery. These • Renewable energy. The possibility of Mex- include developing a new legal framework to increase ex- ico turning into a net oil importer poses the penditure efficiency, including a Performance Evaluation challenge of radically transforming the energy System (Sistema de Evaluación del Desempeño, matrix composition. The heavily based hydro- or SED). Affecting all three levels of government, the carbon structure and the declining oil produc- framework: tion affect the configuration of the power sector and other industrial energy uses. Through the •  Defines new policies on results-based manage- introduction of newer technologies and regula- ment and budgeting; tory changes, the power sector has become the main driver of natural gas demand in Mexico. •  Strengthens budget discipline by improving Diversification through the expanded use of budget management across the budget cycle, renewable energy sources is a key element to from planning through execution to audit and strengthening the long-term sustainability of evaluation; the Mexican economy. •  Introduces a financial management information 54. Finally, a comprehensive system for tracking system (Sistema Integral de Administración and monitoring progress and environmental pres- Financiera Federal, or SIDAFF), which began sures needs to be developed. Mexico’s leadership implementation in 2012; and and early efforts at developing green GDP accounts are steps in the right direction. Going forward, the remain- •  Establishes a specialized function for compre- ing challenge is to: (a) strengthen available measures hensive evaluation of selected Federal Govern- for each sector (physical and economic indicators of ment policies and programs within the Ministry environmental progress) and (b) build on the green of Finance (refer to Mexico Policy Note 9). GDP accounts to guide macroeconomic and sectoral policies. 57. All of these initiatives have yielded benefits, but require institutionalization for Mexico to im- prove public sector performance and the quality Promoting sound public finances of expenditures. Budget and financial management and efficient government covering key functions in the budget cycle, from planning to execution to evaluation, have traditionally focused on process compliance and input control. These functions 55. Sound public finances and an efficient govern- and systems need further upgrading to provide public sec- ment are critical to achieve and sustain a green and tor managers and decision-makers with relevant, timely, inclusive growth agenda. A modern public adminis- high-quality information on financial inputs and outputs tration is fundamental for executing public programs and on outcomes from public projects and programs. This effectively and efficiently and for raising the resources challenge requires actions on several fronts: continue required to finance these programs. An efficient and to implement modern harmonized accounting standards coordinated public administration with well-articulated and performance-informed budgeting policies, using in- institutions is also required to manage medium-term formation technologies more intensively for public sector fiscal pressures through policy choices consistent with management (e-government), raising standards of admin- available resources. In some areas (such as macroeco- istrative procedures and procurement, and strengthening nomic policy and public debt management) Mexico has the capacity of federal and subnational governments to developed the necessary institutions and systems. In deliver high-quality public goods and services in a timely others, such as the management of expenditure to achieve fashion. quality results, progress has been made at establishing a framework, but challenges remain to improve the working 58. The performance budgeting and evaluation of the entire budgetary and policy cycle. Finally, although system reform led by the Ministry of Finance has COUNTRY improvements have taken place in tax administration in advanced a results- and performance-informed PARTNERSHIP recent years, Mexico faces the challenge of developing a orientation in the federal budget process. To STRATEGY FOR broad-based taxation system that substantially enhances incorporate results and performance dimensions into THE UNITED public revenue to finance its development effort without resource allocation, the new system uses performance MEXICAN discouraging investment and formal sector employment indicators for public sector programs, along with system- STATES generation. atic evaluations of public sector policies and programs. 107 Consolidating performance-based budgeting at the feder- 61. Improving the efficiency of government deliv- al and state level depends on consolidating the SIDAFF ery of goods and services requires continuing the and equivalent state financial management systems, procurement system reform initiated in 2009. Mex- improving the quality of the performance information, ico’s public procurement system has a large impact on the institutionalizing the evaluation function, and working country’s economy: public procurement accounts for 40 with sector ministries to consolidate the performance percent of the federal budget and about 10 percent of GDP, culture, implement the new tools and processes, and and the estimated savings from effective procurement are expand capacities to use them. As experience from other substantial. Until recently, the procurement system was countries shows, setting up a performance-informed sys- over-regulated, focused heavily on the administrative tem requires a culture change, with a new management function, and based primarily on legal regulations. The style based on performance incentives; management del- key challenges are to consolidate the current system and egation; and a focus on inputs, outputs, and outcomes. In to target more areas. Especially important is continued addition, because results-informed management requires emphasis on performance outcomes. Because the risk mechanisms for accounting, reporting, and consolidating of waste and corruption in procurement systems is high, information, accounting systems are being modernized procurement reform and monitoring can yield substantial and harmonized. gains for the economy and society. 59. Completing the accounting harmonization pro- gram will remain a challenge for the next admin- Managing medium-term fiscal pressures istration. This task, not simply technical, will require strong political leadership to ensure that the accounting 62. Health and pension spending will rise as the and reporting changes are implemented as the basis for population ages and experiences an epidemiological effective resource management in the public sector. At the transition. Age-related public spending needs will ma- subnational level, supporting the country’s 1,200 smaller terialize alongside demands for filling the existing gaps in and less-developed municipalities must be a priority. the country’s social security and social protection system (refer to Mexico Policy Note 10). Over the next two de- 60. At the subnational level, it will be important to cades the population 65 years of age and older is projected provide support and incentives for implementing to double as a share of total population (Figure 13). This state-level financial management systems consistent demographic transition is expected to lead to an increase of with the accounting harmonization. For states and mu- public spending on pension and old-age income provisions nicipalities, establishing a common budget classification by about one percent of GDP over this period. Similarly, system in parallel with accounting harmonization would health expenditure is bound to increase due to the coun- enhance fiscal transparency and support standardization try’s demographic and epidemiological transitions. Total across levels of government. A more transparent and health spending is likely to grow from 6 to 8 percent of consolidated accounting framework would improve expen- GDP over the next two decades. Approximately half of this diture monitoring and encourage efficiency and account- increase will be on account of the public sector. ability. Incentive mechanisms for subnational governments that adopt an integrated system, and support to those that 63. Mexico’s public finance depends heavily on oil are willing to move forward first, to implement the new revenue, but recent high prices mask an alarming accounting standards will be important through 2013. decline in oil production. Crude oil production has ••ANNEX 4 FIGURE 13. Medium-term expenditure pressures related to population aging are mounting Population ages 15–64 years, 2005–50 Youngest and oldest population, 2005–50 (percent of total population) (percent of total population) 70 35 69 30 68 25 67 20 66 15 65 10 64 COUNTRY 63 5 PARTNERSHIP 62 - STRATEGY FOR 2005 2008 2011 2014 2017 2020 2023 2026 2029 2032 2035 2038 2041 2044 2047 2050 THE UNITED MEXICAN 0-14 years Olderthan 65 years STATES Source: World Bank (2012a). 108 ••ANNEX 4 FIGURE 14. Falling oil production and low tax revenues pose a challenge for revenue management Oil production and trade International Comparison of Public Revenues (thousand barrels daily) 3,500 60 3,250 3,000 50 2,750 2,500 40 OECD average 34.8% 2,250 % of GDP 2,000 30 1,750 1,500 17 1,250 20 1,000 750 10 500 250 0 Norway Sweden Denmark Austria Italy Belgium Finland Hungary Luxemb. Slovenia Germany Iceland France Czech Rep. UK Canada N. Zealand Israel Spain Switzerland Grece Slovak Rep. Ireland Korea Turkey USA Chile Mexico 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 (e) (e) Crude oil production Crude oil exports Social security cont. Local taxes Federal taxes Imports of oil related products Source: INEGI (2012). Source: OECD (2011). declined by 25 percent following a peak in 2004. Esti- broadens the tax base could meaningfully bolster mates of oil reserves and production are surrounded by revenue. Reducing or withdrawing tax expenditures a large margin of uncertainty, though even if production would broaden the tax base and strengthen revenues. For- were to stabilize at the current level of 2,500 thousand gone tax revenues due to these expenditures are large and barrels per day, a growing economy would result in a mainly regressive. Similarly, reducing public subsidies, fall of oil revenue as a percent of GDP. Over the next especially prevalent in the energy sector, would likely two decades such a stabilization of oil production could enhance public revenue as well. Energy subsidies, highly represent a reduction of oil revenue as a percent of GDP regressive in Mexico, mask resource costs. Withdrawing by 3 percentage points. them would raise revenues, avoid distorted price signals, and help Mexico reach its climate change mitigation goals. 64. Declining oil revenue, increasing medium-term health and pension spending, as well as other public 67. The fiscal reform should also aim at improving sector spending requirements call for a strengthen- equity. The Gini coefficient in Mexico has remained vir- ing of tax collection. Federal tax collection in Mexico tually the same before and after taxes, in contrast with Eu- (13.8 percent) is below the OECD average (19.2 percent). ropean Union countries, where taxes and public transfers When local taxes and social security contributions substantially lower-income inequality (Figure 15). This is are included, Mexico drops to last place among OECD partly the result of a low share of progressive income taxes countries (Figure 14). Though the general features and in overall tax revenues. The fiscal reform should include statutory rates of the Mexican tax system compare fa- a careful evaluation of its distributional impact. But the vorably internationally, tax collection efficiency remains distributional incidence of the individual fiscal measures substantially below peers. should be less of a concern than the overall distributional incidence of the tax-benefit package. Energy subsidies, 65. A large informal economy narrows the tax VAT exemptions and zero rating are in effect non-targeted base, and numerous tax loopholes and exemptions consumption subsidies. The amount of the subsidy ob- hinder tax collection and ease tax evasion. The tained depends on household spending on the subsidized Mexican tax collection agency, Servicio de Administración products, which tends to rise with income. The loss in Tributaria, estimates that about 77 percent of income tax purchasing power for lower-income households generated due on non-salary income is not paid, and that value-add- from broadening the tax base and the removal of energy ed tax evasion is 35 percent. Preferential corporate and subsidies would need to be evaluated in parallel to an individual tax regimes, value-added tax exceptions, and increase in targeted social spending programs. Eliminat- multiple rates complicate the tax system and facilitate ing subsidies and preferential tax regimes, along with a noncompliance. Exemptions, deductions, and multiple compensation mechanism for lower-income households, rates generate substantial revenue losses, have the same could lead to a net benefit in the income redistribution COUNTRY effect on the budget as does government spending (like function of the tax-benefit system. A fiscal reform that fo- PARTNERSHIP subsidies), and alter the horizontal and vertical equity of cuses on improving the redistributive impact of taxes and STRATEGY FOR the tax system. public transfers could improve citizen trust in the state, THE UNITED currently lower than in other Latin American countries, MEXICAN 66. Adopting an integrated fiscal reform that sim- reflecting taxpayer disappointment with public service STATES plifies the tax system, reforms energy subsidies, and delivery (Figure 16). 109 ••ANNEX 4 FIGURE 15. Fiscal policy did not ••ANNEX 4 FIGURE 16. Citizen trust have much redistributive impact in Mexico in the state remains low in Mexico and Latin America and the Caribbean compared to its Latin American peers Gini Coefficient, 2009, Citizen's Trust in the State, 2011 (before and after taxes and transfers) 70% 0.6 0.51 0.49 0.52 0.51 60% 0.5 0.46 50% 40% 0.4 0.34 30% 0.3 20% 0.2 10% 0% 0.1 Uruguay Ecuador Panama Venezuela El Salvador Argentina Costa Rica LAC Brazil Paraguay Bolivia Colombia Nicaragua Chile Peru Mexico Honduras Dominican Guatemala 0 Mexico LAC European Union Source: Scott (2010). Source: Latinobarómetro (2011: 112). ••ANNEX 4 FIGURE 17. Subnational public finances face low tax revenue and rising public debt since 2009 Own revenues, 2010 Subnational debt (Mex$ billion, 2011 prices) (percent of total revenues) 35 450 30 400 350 25 300 20 250 15 200 10 150 100 5 50 0 0 DF CHICH BCS NL EDOMEX QRO QROO GTO National SON BC VER CAM SIN HGO TAMPS DGO AGS JAL COL CHIS MOR SLP COAH YUC ZAC MICH OAX PUE TAB GRO NAY TLAX 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Source: Banco de Información Económica / INEGI (April, 2012). Source: Estadísticas de Deuda Publica de Estados y Municipios / Secretaría de Hacienda y Crédito Público (Abril, 2012). Improving subnational public finances 69. Dependence on federal transfers increases the volatility of subnational public finances during 68. The high centralization of Mexico’s tax periods of economic instability and puts pressure system has reduced the incentives of subnational on state public debt (Figure 17). The lack of fiscal governments to collect taxes. A number of subna- discipline has led to unsustainable fiscal positions in tional governments suffer from limited administrative some states. This calls for fiscal consolidation programs capacity to fulfill key tax administration functions, that combine financing (conditional on fiscal and service while the dependence on federal transfers remains delivery targets) with technical assistance to mobilize high (90 percent of subnational public revenue). state revenues and improve expenditure management. It These vertical imbalances, combined with the rise in also calls for a transparent crisis resolution mechanism discretionary federal transfers, have reduced states for states that fall into fiscal distress (refer to Mexico incentives to raise their own revenue. Property tax, Policy Note 11).v COUNTRY for example, is an important source of public revenue PARTNERSHIP STRATEGY FOR for subnational governments in OECD countries, but The reform agenda summarized in this overview, THE UNITED in Mexico amounts to only 0.2 percent of GDP. Mean- and described in more detail in the compendium of MEXICAN while, rapidly growing subnational expenditures now policy notes, is challenging but feasible. It proposes STATES constitute more than half of total subnational public an integrated reform agenda that seeks to promote pro- expenditures. ductivity, reduce poverty and inequality, promote green 110 growth, and strengthen public finances and government efficiency. Mexico has a unique opportunity in the next The overview was prepared by a World Bank sexenio to promote inclusive and sustainable growth. But team of economists and sector specialists. Un- it will require setting priorities and sharing responsibili- der the leadership of Paloma Anós Casero, the team ties between the elected government and its citizens. included Arturo Ardila, Pedro Arizti, Tania Begazo, Raja Bentaouet, Diomedes Berroa, Kristyna Bish- op, María Eugenia Bonilla, Alessandra Campanaro, Policy Notes: Roland Clarke, Andrea Coppola, Aline Coudouel, Wendy Cunningham, Richard Damania, Laurent • Policy Note No. 1 Fostering sound financial Debroux, Charles Delfieux, Jozef Draaisma, Svet- sector development. lana Edmeades, Gerardo Esquivel, Eva Gutiérrez, Ricardo Hernández, Carolina Hoyos, Jane Hwang, • Policy Note No.2 Toward a more competitive Óscar Ishizawa Escudero, Todd Johnson, Theresa business environment. Jones, David Kaimowitz, Markuz Kitzmuller, Esperanza Lasagabaster, Marth Licetti, Luis Felipe • Policy Note No.3  Fostering innovation for López Calva, William Maloney, Catalina Marulan- productivity and competitiveness. da, David Michaud, Robert Montgomery, Edgardo Mosqueira, John Nash, Angélica Núñez, María  abor markets for inclusive • Policy Note No.4 L Catalina Ochoa, Alexandra Ortiz, Stefano Pagiola, growth. Alan D. Poole, Cristian Quijada, Karina Ramírez, Gaudencio Ramos, Rekha Reddy, Paula Restrepo, • Policy Note No.5:  Promoting an integral Graciela Reyes Retana, Carlos Rodríguez Castelar, social protection system. Luis San Vicente, Jordan Schwartz, Kinnon Scott, Rodrigo Serrano, Francisco Sucre, Guadalupe • Policy Note No.6  Reducing the footprint of Toscano, Azul del Villar, Ariel Yépez, Natasha growth. Zamecnik, and Javier Zuleta. • Policy Note No.7Using natural resources in The overview benefited from guidance from an optimal way. sector management(Rodrigo Chaves, Lily Chu, Louise Cord, Malcom Cosgrove-Davies, Wambui • Policy Note No.8Managing medium-term Gichuri, Maninder Gill, Joana Godinho, Keith fiscal challenges. Hansen, Arturo Herrera, Ede Jorge Ijjasz-Vásquez, Karin Erika Kemper, Aurelio Menéndez, Laurent • Policy Note No.9Strengthening public rev- Msellati, Reema Nayar, Marialisa Motta, Mansoora enue and expenditure management to enhance Rashid, Ethel Sennhauser, Auguste Tano Kouame, service delivery. and Anna Wellenstein); the Country Management Unit (Harold Bedoya, Gloria Grandolini, Sabine • Policy Note No.10Strengthening subnation- Hader, Eguiar Lizundia González, and Fernanda al public finance. Zavaleta); and the International Finance Corpora- tion (Roberto Albisetti, Yvy Figueroa, and Laura Vila). The overview also reflects the guidance re- ceived from internal and external reviewers, including Erik Bloom, Carter Brandon, Augusto de la Torre, David Gould, Stephane Hallegatte, Rafael de Hoyos Navarro, and Marcelo Selowsky (International Monetary Fund). Patricia Chacón-Holt, Beatriz Franc, and Rosa María Hernández-Fernández provided valuable assistance during the production process. Bruce Ross-Larson and his team from Communi- cations Development Incorporated (CDI) provided COUNTRY useful editing assistance. PARTNERSHIP STRATEGY FOR THE UNITED MEXICAN STATES 111 References for Annex 4 AZEVEDO, J., G. Inchauste and V. Sanfelice (2012). Decomposing the Decline in Income Inequality in Latin America. Processed.. BOURGUIGNON, Francois and Sébastien Desus (2009). “Equity and Development: Political Economy Considerations”. In Levy, Santiago, and Michael Walton, editors. No Growth Without Equity? Inequality, Interests, and Competition in Mexico. Washinton, D.C.: World Bank and Palgrave Macmillan . BOSWORTH, Barry P., Susan M. Collins (2003). The Empirics of Growth: An Update. Brookings Papers on Economic Activity 2003(2). -- pp. 113-179. BOTERO, Juan, C. Simaeon Djankov, Rafel La Porta, Florencio Lopez-de-Silanes, and Andrei Shleifer (2004). “The Regulation of Labor”. The Quarterly Journal of Economics, 1339-82. CEDLAS (Center for Distributional, Labor and Social Studies) (2012). Socio-Economic Database for Latin America and the Caribbean (SEDLAC). Buenos Aires, Argentina: Universidad de la Plata and The World Bank. CONAGUA (Comisión Nacional del Agua) (2011). Atlas del Agua en México 2011. México: SEMARNAT. CONEVAL (El Consejo Nacional de Evaluación de la Política de Desarrollo Social) (2012). Estimaciones de Pobreza. México http://www.coneval.gob.mx/cmsconeval/rw/pages/medicion/cifras/pobrezaporingresos.es.do _________ (2011). Pobreza en México y en las Entidades Federativas 2008-2010. – México : Documento obtenido en www. coneval.gob.mx. -- Julio 2011. De la Torre Augusto, Pablo Fajnzylber, John Nash. (2009). Low Carbon-High Growth: Latin America & Climate Change. Washington, D.C.: World Bank. FAO (Food and Agriculture Organization). (2010). Global Forest Resources Assessment. Rome, Italy: FAO. Hallegatte, Stéphane, Geoffrey Heal, Marianne Fay, and David Treguer. (2011). From Growth to Green Growth: A Frame- work. Policy Research Working Paper 5872. Washington, DC: The World Bank. HANSON, Gordon H. (2010). “Why isn’t Mexico rich?” Journal of Economic Literature, 48 (4), 987-1004. INE (Instituto Nacional de Ecología). 2009. México: Cuarta Comunicación Nacional ante la Convención Marco de las Naciones Unidas sobre el Cambio Climático. Secretaría de Medio Ambiente y Recursos Naturales. México. INEGI (Instituto Nacional de Estadística y Geografía). 2012. Banco de Información Económica. – Mexico : INEGI. _________ (2012). Finanzas Públicas Estatales y Municipales. – México : INEGI. IFC (International Finance Corporation) (2012). Doing Business 2012: Doing business in a more transparent world. Wash- ington, D.C.: IFC. LATINOBAROMETRO (2011). Informe. Santiago de Chile, 28 de Octubre.. Muñoz Piña, Carlos, Sara Avila Forada, Luis Armando Jaramillo Mosqueira, Jaime Sainz Santamaría, and Adán Martínez Cruz. (2006). Agriculture Demand for Groundwater in Mexico: Impact of water right enforcement and electricity user-fee on Groundwater level and quality. Working Paper INE-DGIPEA/0306. Instituto de Ecología (INE-SEMARNAT). OECD (Organisation for Economic Cooperation and Development) (2011). Education at a Glance, 2011: OECD Indicators. Paris: OECD Publishing. _________ (2011). Estudios Económicos de la OCDE : México. _________ (2009). Creating Effective Teaching and Learning Environments: First Results from TALIS. PISA (Programme for International Student Assessment) (2009). The PISA 2009 International Database. OECD. SCOTT, John (2010). “Gasto Público para la Equidad: Del Estado Excluyente hacia un Estado de Bienestar Universal”. México: CIDE : CONEVAL. TORCHE, Florencia, and Luis Felipe López-Calva (2010). “Stability and Vulnerability of the Latin American Middle Class”, in Katherine Newman, ed. (forthcoming) Dilemmas of the Middle Class around the World. Yale University (2012). Environmental Performance Index. Índice disponible. http://epi.yale.edu/ ZACHARIADIS, Marios (2003). “R&D, innovation, and technological progress: a test of the Schumpeterian framework without scale effects”, Canadian Journal of Economics, Vol. 36(3). pp. 566-86. World Bank (2012a). World Development Indicators Database. – The World Bank : Washington, D.C. – Base de datos disponible en: http://data.worldbank.org/data-catalog/world-development-indicators. World Bank (2012b). Economic Mobility and the Rise of the Latin America Middle Class. Washington, DC: World Bank. World Bank (2012c). World Development Report 2012. Gender Equality and Development (Washington, DC: World Bank). COUNTRY PARTNERSHIP STRATEGY FOR THE UNITED MEXICAN STATES 112 Annex 5. Poverty and Shared Prosperity Trends: The Challenge of Measuring the Goals of Development 1. Poverty is typically understood in absolute terms, composite indexes — such as the Human Development defined in reference to a poverty line that reflects the Index, which Sen himself helped formulate — to the purchasing power sufficient to cover essential needs. monitoring of multiple development goals, as in the Mil- There is a broad-based consensus that reducing absolute lennium Development Goals. poverty is a worthy development goal. Along economic growth, poverty reduction is understood as an important development goal in itself, while whether income inequal- Mexico: pioneer of poverty measurement ity is an important goal in its own right has been debated for decades. In turn, this reflects at least two underlying 4. Mexico became the first country in Latin America to and related debates. In particular, how inequality evolves adopt a Multi-dimensional Poverty Index as its official over time and the impact of inequality on growth. poverty measure. The law on social development (Ley General de Desarollo Social or LGDS) published in Jan- 2. As the impact of income inequality on economic uary 2004, had the key objective of ensuring access to growth, or vice versa, remains unresolved, recent pol- social development and the ability to fully exercise the icy discussions have tended to focus more on ensuring social rights laid out in the Mexican Constitution for the equality of opportunities alongside protecting people from entire population of the country. This law moved Mexico absolute deprivation, rather than on income inequality away from a purely economic measure of well-being to alone. This recent emphasis draws from the work of a one firmly rooted in Sen’s ideas of functionings and linked number of thinkers, including Amartya Sen, whose “ca- explicitly to the national Constitution, which lays out a pability approach”, first conceptualized in the 1980s, has series of detailed social or human rights. argued — in brief and at the risk of oversimplification — for focusing on and equalizing the “capability set” or the 5. The adoption of a Multi-dimensional Poverty Index rep- set of possible “functionings”, that is, the set of activities resented a significant change in how poverty was viewed in that an individual can choose to engage in using resources Mexico. Up until 2008, poverty was measured in terms of at his or her command. Defined as such, “well-being” is whether a person’s per capita income placed him or her understood more broadly, and the focus is on protecting below three poverty thresholds. The lowest or most extreme individuals from absolute deprivation and removing poverty line was “food poverty”, set at the value needed disadvantages that are beyond any individual’s control. to buy a basic basket of food items. According to CONE- Real income remains essential, but having the freedom to VAL, food poverty refers to those people who do not have make substantive choices also requires good health and the purchasing power to acquire a basic food basket. As of education. Following this approach, public policy focuses March 2012 the monthly food poverty line was equivalent on ensuring a fair(er) distribution of assets, economic to Mex$1,253.41 in urban areas and Mex$865.58 in rural COUNTRY opportunities, and political representation. areas. The second, somewhat higher poverty line is that PARTNERSHIP of “capabilities poverty”, which corresponds to the value STRATEGY FOR 3. The multi-dimensional aspect of this understanding of of income necessary to cover the basic food basket plus THE UNITED development has warranted a more complex approach to basic health and education. The highest line, “patrimonio MEXICAN the measurement of well-being and progress. There are or asset”, included additional allowances for housing and STATES numerous alternatives, ranging from the formulation of transportation. 113 ••ANNEX 5 TABLE 1. Comparison of Poverty measures in Mexico Well-being Poverty (Income Multi-dimensional Poverty (MPI) Monetary Poverty component of MPI) – OFFICIAL POVERTY MEASURE Types of Poverty Food poverty: income below a level Income below a minimum well-being Extreme poor: income is below a minimum Measures to acquire a basic food basket line: income is below a level to well-being line and the individual Capabilities poverty: income below a acquire a basic food basket has 3 or more social deprivations level to acquire a basic food basket Income below a well-being line: Moderate poor: income is below a well- + basic health and education income below a level to acquire a basic being line and the individual is deprived Assets poverty: income below a level to food basket + non-food basket has 1 or more social deprivations acquire a basic food basket + basic health and education +basic housing and transportation Components of the · Basic food basket · Basic food basket Social Deprivation Index: poverty measures · Basic food basket + basic · Basic food basket + basic no-food basket · Current income per capita health and education · Educational gaps · Basic food basket + basic health and · Access to health services education + basic housing and transportation · Access to social security · Quality and spaces of dwelling · Access to basic services in housing · Access to food Poverty lines in Food poverty line: Minimum well-being line: Minimum well-being line: MX$ per month · Urban areas MX$1,253.41 · Urban areas MX$1,172.9 · Urban areas MX$1,172.9 (of June 2013) · Rural areas MX$865.58 · Rural areas MX$832.2 · Rural areas MX$832.2 Capabilities poverty line: Well-being line: Well-being line: · Urban areas MX$1,414.6 · Urban areas MX$2,404 · Urban areas MX$2,404 · Rural areas MX$1,023.37 · Rural areas MX$1,540 · Rural areas MX$1,540 Assets poverty line: · Urban areas MX$2,314.2 · Rural areas MX$1,570.68 Poverty lines Food poverty line (PPP 2012): Minimum well-being line (PPP 2012): Minimum well-being line (PPP 2012): in USD$ (PPP) · Urban areas MX$122.26 · Urban areas USD$114.41 · Urban areas USD$114.41 per month · Rural areas MX$84.43 · Rural areas USDD$81.17 · Rural areas USDD$81.17 Capabilities poverty line (PPP 2012): Well-being line (PPP 2012): Well-being line (PPP 2012): · Urban areas MX$137.99 · Urban areas USD$234.49 · Urban areas USD$234.49 · Rural areas MX$99.82 · Rural areas USD$150.22 · Rural areas USD$150.22 Assets poverty line (PPP 2012): · Urban areas MX$225.73 · Rural areas MX$153.21 Income component Average current total income of the last 6 Average current income of the last 6 Average current income of the last 6 months including monetary incomes, non- months (monetary and non-monetary). months (monetary and non-monetary) monetary incomes as well as imputed rents. Adjusted by (i) adult equivalent scale; adjusted by: (i) adult equivalent scale; (ii) not imputing rents; (iii) eliminating (ii) not imputing rents; (iii) eliminating non-systematic transfers and (iv) excluding non-systematic transfers and (iv) excluding incomes derived from asset sales. incomes derived from asset sales. 6. Today Mexico measures poverty through an explicit threshold was a substantial undertaking that drew in a combination of economic well-being (income) and the wide spectrum of government and civil society. The exten- social rights of the population. In addition to per capita sive process was led by the National Council on Evalua- income, article 36 of the LGDS spells out the social tion (CONEVAL) in partnership with line ministries, other rights whose lack would place a person in a condition of agencies of government, and academia. Critical decisions poverty; and rights related to education, health, social had to be made not just on the indicators to include, but security, housing, related utilities and infrastructure, food the levels below which a person should be considered security, and social cohesion. Importantly, these are all poor (establishing thresholds). And most troublesome was social development rights that are outlined in the Mexican the need to develop a consensus around an aggregation Constitution although the level of detail of each of these strategy: whatever combination of multiple indicators is rights in the Constitution varies: education was quite done implies comparative evaluations of the importance COUNTRY explicit while the right to housing refers to a vaguer right of each right. PARTNERSHIP STRATEGY FOR to “dignified and decent” housing and food security was THE UNITED only guaranteed for children. 8. The official Multi-dimensional Poverty Index is con- MEXICAN ceived of as a two-dimensional indicator with economic STATES 7. Operationalizing the social rights into indicators that well-being (measured by income) seen as one dimension, could be measured and monitored and establishing a separate from the other dimension of social rights. By 114 this construction, per capita income is included in the The World Bank measures of measure as almost an independent measure while a series poverty and shared prosperity of six rights (or in their absence, deprivations) are aggre- gated in the second dimension. While income remained 11. The World Bank retains a uni-dimensional measure of as part of the poverty measure, its definition has changed poverty, income, or consumption, but argues strongly that along with the thresholds in use. (These changes can be poverty is a multi-dimensional phenomena, as its thorough seen in Table 1). World Development Indicators testify. In spite of these efforts, the World Bank is probably best known for the 9. The implications of the move to a Multi-dimensional economic well-being measure of poverty — the widely Poverty Index is that government policies that focus pure- used metric of “one-dollar-a-day” poverty line. The origin ly on income growth only will, in all likelihood, be insuf- of the line comes from work done for the 1990 World De- ficient for poverty eradication, and the poverty reducing velopment Report on Poverty. The aim of this work was to impact of government investment in services is now measure poverty in the developing world using standards reflected in the official poverty measure. For persons to of the poorest countries. A critical step for such an exer- be considered poor in multi-dimensional terms, they have cise was the determination of which poverty threshold to income below the monthly well-being line (i.e., income use. The line observed in cross-country studies caught the poverty) and have at least one deprivation in terms of imagination and became the one-dollar-a-day line used housing, infrastructure, education, health, social security, often in comparative work across countries and the object or food security. An extremely poor person has income of the first Millennium Development Goal. The original below the minimum well-being line and suffers from three work has been updated multiple times: the most recent or more deprivations. Thus, income poverty alone does version sets the value to $1.25; but the overall logic and not make one poor nor can income growth alone move one focus is the same. out of poverty. 12. The recent move to a concept of shared prosperity 10. The Multi-dimensional Poverty Index also calls reflects, in part, the World Bank’s concern with broader attention to the vulnerable population. Anyone who has concepts than average economic growth. Interestingly, adequate income but suffers three or more deprivations although the terms appear to be similar, there has been is considered to be vulnerable in terms of social depriva- substantial evolution of thinking about poverty at the tions. Those with inadequate income but having all of their World Bank. In 1972, then president of the World Bank, social rights complete are considered to be vulnerable in Robert McNamara, stressed the need for governments of terms of income. In 2012 the share of the population the developing countries “... to reorient their development in extreme poverty was 9.8 percent of the population, an policies in order to attack directly the personal poverty of additional 35.7 percent suffered from moderate poverty. the most deprived 40 percent of their populations.” In The total share in poverty in 2012 was 45.5 percent, a de- 2013, Jim Yong Kim, president of the World Bank, called cline from 2010 when it was 46.1 percent but represents for attention to be paid to the income growth of the bottom still an increase in 0.5 million additional people. 40 percent of the population. The difference is that in the 1972 case the discussion focused simply on the need to eradicate absolute poverty, while the 2013 emphasis is on the notion of shared prosperity and the need for growth to be pro-poor and inclusive. ••ANNEX 5 FIGURE 1. Multidimensional Poverty 2012 Recent poverty trends 13. Monetary poverty rose between 2006 and Vulnerable people by Population w/out social deprivations deprivations and with 2012, breaking a decade-long trend of poverty adequate economic reduction in Mexico. Available data spanning two well-being decades of monetary measures of poverty show that mone- WL tary poverty rates in 2012 are similar to the rates in 1992: the net reduction of moderate and extreme poverty was of MWL Multi-dimensional Vulnerable population poverty by income only 0.8 and 0.7 percentage points, respectively, over 20 years (Figure 2). Extreme COUNTRY 14. Between 2006 and 2012 the moderate poverty rate Multidimensional PARTNERSHIP poverty (asset poverty or pobreza de patrimonio) increased STRATEGY FOR substantially from 42.9 to 52.3 (to 61.4 million people). THE UNITED C*=3 C=1 During the same period, the extreme poverty rate (food MEXICAN Source: CONEVAL. poverty or pobreza alimentaria) increased from 14.0 to STATES Note: WL= Well-being line / MWL= Minimum well-being line 19.7 (to 23.1 million people). Poverty increased markedly 115 ••ANNEX 5 FIGURE 2. Monetary Poverty Rates the Multi-dimensional Poverty Index increased by half a million people over the same period. In contrast to 80 monetary measures and other Multi-dimensional Poverty 69.0 70 63.7 Index measures of poverty such as moderate poverty and vulnerability measures, only extreme poverty had an 60 53.6 53.1 51.1 52.3 unambiguous improvement in relative and absolute terms. Poverty Headcount (%) 50.0 47.2 47.0 47.8 50 52.4 Not only did the extreme poverty rate declined from 11.3 to 37.4 9.8 percent, but also the number of extreme poor decreased 40 33.3 42.9 by 1.4 million people (Table 2). 30 24.1 21.4 20.0 17.4 18.2 18.6 18.8 19.7 16. The average population with three or more social 20 21.2 deprivations dropped from 28.2 to 23.9 in 2012 (Table 10 14.0 2), and the share of population with social depriva- tions fell unambiguously in five out of the six social 0 1992 1994 1996 1998 2000 2002 2004 2005 2006 2008 2010 2012 areas in the 2010-12 period (Table 3). The largest statistically significant improvement was in access Extreme Poverty Moderate Poverty to health care, where 8.2 million more people gained access. The only social deprivation for which the Source: CONEVAL using the traditional ENIGH 1992-2012. share of the population increased was access to social security (totaling 71.8 million without access to social security). However, the net increase is not statistically significant (Table 3). between 2006 and 2008 (5 percentage points in moderate poverty), with smaller increases in 2008-10 and level- ing-off in 2010-12. Extreme poverty increased signifi- Shared Prosperity in Mexico cantly during the period 2006-08 (when the headcount increased by 4.7 percentage points) and stagnated in 17. For the period 2010-12, Mexico’s income growth for the years after, hovering around 19 percent. Until 2006, the bottom 40 percent had an average annual increase Mexico kept pace with the region in poverty reduction. of 2.3 percent while the increase in the average income Nevertheless, since 2008 the economy suffered a series growth for the total population was 0.6 percent. (Figure 3) of shocks — food price crisis, global financial crisis, the The increase was not enough to compensate the drop that AH1N1-flu epidemic, natural disasters — that slowed occurred between 2008 and 2010, when income growth economic growth. of the bottom 40 percent decreased slightly more than the total population (2.39 percent versus 2.89 percent). 15. Multi-dimensional Poverty Index shows, however, that Therefore, looking at the entire period 2008-12, the aver- between 2010 and 2012 the share of the population living age income growth of the bottom 40 percent was negative in poverty decreased from 46.1 to 45.5. In absolute terms, (but the decline was less pronounced than for the overall poverty increased: the total number of poor according to population). ••ANNEX 5 TABLE 2. Multi-dimensional Poverty Measurement, 2010-2012 Percentage Change Total Population Average Social Indicators 2010 2012 2010-2012 2010 2012 2010 2012 Poverty Poor 46.1 45.5 -0.6 52.8 53.3 2.6 2.4 Moderate Poor 34.8 35.7 0.9 39.8 41.8 2.2 2.0 Extreme Poor 11.3 9.8 -1.5*** 13.0 11.5 3.8 3.7 Vulnerable population due to social deprivations 28.1 28.6 0.5 32.1 33.5 1.9 1.8 Vulnerable Population due to income 5.9 6.2 0.3 6.7 7.2 0.0 0.0 Non-poor and vulnerable population 19.9 19.8 -0.2 22.8 23.2 0.0 0.0 COUNTRY Social Deprivation PARTNERSHIP STRATEGY FOR Population with one or more social deprivation 74.2 74.1 -0.1 85.0 86.9 2.3 2.2 THE UNITED Population with three or more social deprivation 28.2 23.9 -4.3*** 32.4 28.1 3.6 3.5 MEXICAN Source: CONEVAL using the MCS-ENIGH 2010 and 2012. STATES Note: Significance levels *10%, **5% and ***1%. 116 ••ANNEX 5 TABLE 3. Well-being and social deprivation indicators, 2010-2012 Indicators Percentage Change Total Average 2010 2012 2010-2012 2010 2012 2010 2012 Social Deprivation Indicators Educational gap 20.7 19.2 -1.4*** 23.7 22.6 3.1 2.9 Access to healthcare 29.2 21.5 -7.7*** 33.5 25.3 3.0 2.8 Access to social security 60.7 61.2 0.5 69.6 71.8 2.5 2.3 Quality and spaces of the dwelling 15.2 13.6 -1.6*** 17.4 15.9 3.6 3.4 Basic services in the dwelling 22.9 21.2 -1.7*** 26.3 24.9 3.3 3.2 Food Security 24.8 23.3 -1.5* 28.4 27.4 3.0 2.9 Well-being Population with an income below the minimum well-being line 19.4 20.0 0.6 22.2 23.5 2.9 2.5 Population with an income below the well-being line 52.0 51.6 -0.4 59.6 60.6 2.3 2.1 Source: CONEVAL using the MCS-ENIGH 2010 and 2012. Note: Significance levels *10%, **5% and ***1%. 18. Over the 2008-12 period, per capita income growth rose between 2006 and 2008 (Figure 7 combines the two hovered around zero for almost all income percentiles in series). While there are comparability issues between the Mexico. Only the richest percentile suffered a decreased old and the new series, the new income measure shows larger than 2 percent. However, the incidence of growth had that income inequality rose between 2006 and 2010 but different natures within sub-periods. While in 2008-10, the then dropped in 2012. However, the latter drop is not poorest segments were the most affected; in 2010-12 they statistically significant. More time and data is needed to were benefited the most in the recovery, which explains the tell if the trend will continue. drop in inequality during the last years. 19. These recent trends in shared prosperity are accom- A large degree of regional inequality panied by a reduction of income inequality for the period 2010-2012. According to the income measure from the 20. Differences in GDP per capita across Mexican states poverty indicator prior to the adoption of the Multi-di- and regions have traditionally been high and fairly per- mensional Poverty Index, income inequality had fallen sistent. GDP per capita in the richest state in 1950 was since 1996. The new income variable used as part of the 6.7 times that of the lowest, and in 2000 this ratio was still Multi-dimensional Poverty Index shows that inequality 6.1. According to data from CONEVAL, poverty levels are ••ANNEX 5 FIGURE 3. Measures of ••ANNEX 5 FIGURE 4. Evolution of Shared Prosperity 2008-2012 Income Gini Coefficient, 1992-2010 56 3% 55.1 54.4 54 2% 53.7 53.7 52 53.1 1% 50.89 50 51.2 50.9 Gini coefficient 0% 50.3 50.1 50.53 49.77 -1% 48 -2% 46 -3% 44 -4% COUNTRY 2008-2010 2010-2012 2018-2012 42 PARTNERSHIP Annualized Growth Rate Mean Income Bottom 40% 40 STRATEGY FOR 1992 1994 1995 1996 1998 2000 2002 2004 2006 2008 2010 2012 THE UNITED Annualized Growth Rate Mean Income Total Population MEXICAN Source: Data from 1992 to 2006 comes from the World Bank WDI. Data for 2008 to 2012 comes from CONEVAL STATES Source: World Bank team calculations using data from MCS-ENIGH 2008-2012. using the MCS-ENIGH 2008. 117 ••ANNEX 5 FIGURE 5. Shared Prosperity in Mexico by States, 2008-2012 15% 10% 5% 0% -5% -10% -15% Nayarit Quintana Roo Puebla Mexico Guerrero Baja California Sur Jalisco Nuevo Leon Durango Colima Tabasco Aguascalientes Hidalgo DF Baja California Coahuila Michoacan Tamaulipas Sonora Yucatan Morelos Zacatecas Guanajuato Queretaro San Luis Potosi Tlaxcala Campeche Sonora Chihuahua Culiacan Chiapas Veracruz Source: World Bank calculations using data from MCS-ENIGH 2008-2012 also far from being uniform across the country. In 2012 the Gender and ethnicity differences state with the highest moderate poverty rate was Chiapas (74.7 percent), followed by Guerrero (69.7 percent), Pueb- 23. Gender-specific estimates of poverty indicate dif- la (64.5 percent) and Oaxaca (61.9 percent). In contrast, ferences between women and men. From 2010 to 2012, the states with the lowest moderate poverty rates in 2010 the Multi-dimensional Poverty Index extreme poverty were Nuevo Leon (23.2 percent), Coahuila (27.9 percent) rate was equally reduced among men and females by and Distrito Federal (28.9 percent). 1.5 percentage points. However, in 2012, there were 1.5 million fewer men than women living in moderate poverty. 21. If looking at extreme poverty measures, national Moreover, 300,000 more women than men live in extreme average hides important regional differences. Chiapas, poverty (left, Figure 6). Guerrero, and Oaxaca have extreme poverty rates of 32.2, 31.7, and 23.2 percent, respectively. These are 10 times 24. Poverty among the indigenous population has fallen higher than the poverty rates of Nuevo Leon, Distrito faster, but their poverty levels remain high. Extreme Federal, and Baja California (2.4, 2.5, and 2.7, respec- poverty among indigenous population decreased 7.2 tively). One out of 3 Mexicans in poverty live in Chiapas, percentage points, lifting more than 800,000 people out Guerrero, or Oaxaca. of poverty. Despite this progress, 8.2 million indigenous people still live in poverty, 3.5 million of whom are 22. There are also large regional discrepancies in terms extremely poor (right, figure 6). The social deprivation in- of shared prosperity in Mexico. While the mean income of dicator fell in each dimension among indigenous groups. the bottom 40 percent in Oaxaca, Chiapas, and Veracruz In particular, they had a large improvement in access to had an average growth above 8 percent between 2010 and healthcare for which 1.3 million gained access. 2012, in the states of Nayarit mean income decreased by 8 percent (Figure 5). ••ANNEX 5 FIGURE 6. Mexico’s multidimensional poverty measures by gender and by ethnicity, 2012 80 50 70 60 40 37.0 50 (4.2 milion) 41.7 30 34.9 36.0 34.7 35.3 40 (4.7 milion) 30 37.8 20 34.5 35.0 20 30.6 (35.6 milion) (37.1 milion) 10 COUNTRY 10 11.3 9.9 11.3 9.8 8.4 7.6 PARTNERSHIP 0 0 STRATEGY FOR 2010 2012 2010 2012 2010 2012 2010 2012 THE UNITED Indigenous Non-Indigenous Women Men MEXICAN STATES Extreme Poor Moderate Poor Extreme Poor Moderate Poor 118 ••ANNEX 5 TABLE 4. Extreme poverty headcount rates by Mexican state in 2012 World Bank’s measures Mexico’s measure of extreme poverty of extreme poverty   Percentage of the population Percentage of the population Percentage of the population below   below the minimum in extreme poverty the WB’s extre poverty line   well-being line (using official “minimum (using official (using World Bank’s 1.25 per day well-being line”) miltidimensional measure) poverty line at 2012 prices) Estados Unidos Mexicanos 20.0 9.8 4.4 Entidad federativa  Aguascalientes 14.9 3.4 3.5 Baja California 10.9 2.7 1.9 Baja California Sur 13.1 3.7 3.4 Campeche 20.6 10.4 5.0 Coahuila 11.6 3.2 1.7 Colima 11.4 4.0 2.5 Chiapas 46.7 32.2 15.2 Chihuahua 15.9 3.8 3.5 Distrito Federal 6.9 2.5 0.7 Durango 25.0 7.5 6.3 Guanajuato 16.9 6.9 3.2 Guerrero 45.1 31.7 13.9 Hidalgo 23.8 10.0 6.0 Jalisco 16.3 5.8 3.2 México 15.9 5.8 2.2 Michoacán 24.2 14.4 4.3 Morelos 15.0 6.3 1.9 Nayarit 23.4 11.9 8.6 Nuevo León 8.8 2.4 1.6 Oaxaca 34.4 23.3 11.9 Puebla 32.9 17.6 7.3 Querétaro 14.7 5.2 3.5 Quintana Roo 16.6 8.4 4.0 San Luis Potosí 23.3 12.8 6.0 Sinaloa 13.4 4.5 2.2 Sonora 10.2 5.0 2.3 Tabasco 23.6 14.3 5.6 Tamaulipas 14.9 4.7 1.4 Tlaxcala 24.4 9.1 4.0 COUNTRY Veracruz 24.0 14.3 4.4 PARTNERSHIP STRATEGY FOR Yucatán 16.6 9.8 1.7 THE UNITED Zacatecas 30.3 7.5 8.9 MEXICAN STATES Source: World Bank staff using data from, Encuesta Nacional de Ingresos y Gastos de los Hogares, ENIGH (2012), and CONEVAL (2013). 119 ••ANNEX 5 TABLE 5. Moderate and extreme monetary poverty by Mexican state Economic Welfare Share of population below “ Share of population below linea de bienestar minimo” “linea de bienestar” 2010 2012 2010 2012 Estados Unidos Mexicanos 19.4 20.0 52.0 51.6 Entidad federativa Aguascalientes 14.8 14.9 46.2 47.9 Baja California 9.8 10.9 37.9 38.8 Baja California Sur 11.2 13.1 35.5 38.0 Campeche 21.6 20.6 54.8 50.2 Coahuila 11.5 11.6 40.7 40.7 Colima 8.6 11.4 39.6 40.7 Chiapas 50.9 46.7 80.9 76.4 Chihuahua 16.6 15.9 51.8 46.0 Distrito Federal 6.0 6.9 34.0 35.5 Durango 23.4 25.0 60.3 61.2 Guanajuato 16.5 16.9 54.2 49.3 Guerrero 38.8 45.1 69.5 71.9 Hidalgo 23.8 23.8 58.8 55.8 Jalisco 14.7 16.3 43.3 47.9 México 14.5 15.9 48.5 53.1 Michoacán 21.6 24.2 59.1 57.9 Morelos 13.9 15.0 49.1 50.1 Nayarit 17.8 23.4 45.7 53.2 Nuevo León 6.0 8.8 29.2 31.7 Oaxaca 36.2 34.4 68.3 63.6 Puebla 27.7 32.9 67.1 68.7 Querétaro 16.0 14.7 46.4 43.3 Quintana Roo 12.1 16.6 39.4 45.0 San Luis Potosí 26.0 23.3 59.6 57.1 Sinaloa 14.2 13.4 44.4 42.6 Sonora 10.9 10.2 40.0 33.8 Tabasco 22.4 23.6 61.2 52.7 Tamaulipas 14.5 14.9 48.3 47.2 Tlaxcala 26.8 24.4 67.7 63.9 COUNTRY Veracruz 27.8 24.0 62.1 56.6 PARTNERSHIP STRATEGY FOR Yucatán 17.9 16.6 54.8 55.1 THE UNITED Zacatecas 29.7 30.3 67.1 60.6 MEXICAN STATES Source: CONEVAL (2013) 120 ••ANNEX 5 TABLE 6. Population share by social deprivation Fundamental rights regarding social development Access to Access to social Quality and spaces Basic services Educational Gap Food security healthcare security of the dwelling in the dwelling 2010 2012 2010 2012 2010 2012 2010 2012 2010 2012 2010 2012 Estados Unidos Mexicanos 20.7 19.2 29.2 21.5 60.7 61.2 15.2 13.6 22.9 21.2 24.8 23.3 Entidad federativa Aguascalientes 17.2 15.3 19.7 14.8 49.3 47.6 6.9 4.9 4.8 3.5 20.2 21.5 Baja California 16.9 14.6 31.4 22.3 54.7 55.7 9.9 8.1 6.6 4.4 16.4 15.2 Baja California Sur 16.9 15.7 20.2 15.1 45.9 43.5 12.3 10.9 9.2 6.8 26.0 21.9 Campeche 24.1 19.2 19.2 12.2 60.0 61.0 22.1 17.7 36.5 33.0 31.2 18.7 Coahuila 12.2 12.5 17.6 14.4 34.3 34.3 4.4 5.4 6.0 5.5 20.8 21.2 Colima 18.8 18.8 16.4 14.6 55.8 50.8 12.1 10.0 9.8 7.9 19.9 22.3 Chiapas 35.0 33.5 35.4 24.9 82.4 83.3 33.3 29.1 60.7 56.8 30.3 24.7 Chihuahua 17.5 16.1 18.5 13.6 48.4 48.4 6.4 5.3 7.0 5.2 17.7 18.4 Distrito Federal 9.5 9.2 32.5 23.4 52.4 52.5 7.6 6.4 3.9 3.0 15.5 13.0 Durango 19.0 16.1 27.5 17.8 58.7 57.9 11.3 9.4 18.5 13.0 20.3 21.4 Guanajuato 23.6 23.9 25.3 19.0 65.7 62.1 9.6 9.8 18.0 15.3 23.7 28.5 Guerrero 28.4 26.8 38.9 25.4 78.5 78.5 40.7 33.4 56.6 59.0 42.7 39.4 Hidalgo 23.4 20.6 29.8 18.7 71.8 71.3 13.6 12.8 31.7 28.3 29.0 25.0 Jalisco 20.6 18.4 31.9 23.7 55.4 53.5 6.7 9.1 12.8 9.2 22.0 20.6 México 18.5 15.4 30.7 25.3 59.0 64.8 12.9 10.2 15.9 11.5 31.6 17.7 Michoacán 30.6 26.1 38.2 28.6 72.2 71.6 22.4 21.1 27.2 30.4 28.8 32.2 Morelos 19.3 19.2 29.9 22.3 64.6 64.4 15.7 14.8 20.6 18.6 22.0 30.7 Nayarit 20.2 19.3 22.8 18.3 61.7 62.6 12.8 11.9 16.4 19.6 23.6 28.8 Nuevo León 13.1 12.7 18.6 15.5 37.2 37.0 6.8 7.0 3.2 3.3 15.7 17.6 Oaxaca 30.0 27.7 38.5 20.9 79.4 75.7 33.9 24.6 58.0 55.5 26.4 31.7 Puebla 25.3 24.1 40.4 29.6 72.3 77.1 19.6 19.4 37.3 34.8 27.6 30.1 Querétaro 19.5 17.5 22.1 15.5 60.6 56.7 9.9 10.9 17.6 14.9 21.3 19.8 Quintana Roo 18.3 17.6 24.3 21.2 53.8 54.9 21.7 19.7 15.2 14.5 21.8 18.6 San Luis Potosí 22.2 21.2 19.0 14.0 57.3 61.6 16.3 13.5 32.3 32.5 30.1 24.7 Sinaloa 19.3 18.4 21.4 16.6 53.6 52.7 8.5 10.1 15.7 16.1 24.5 25.9 Sonora 14.0 13.6 22.7 17.1 46.2 46.8 11.7 10.2 15.3 12.6 25.8 26.0 Tabasco 19.8 19.1 23.9 18.2 73.3 71.2 21.7 19.4 38.9 44.7 33.3 33.4 Tamaulipas 14.4 15.5 20.9 15.8 51.1 50.6 9.6 10.5 16.5 10.6 13.6 19.2 Tlaxcala 15.6 15.8 33.4 24.2 70.8 70.8 11.7 13.0 13.7 16.0 24.1 28.4 COUNTRY Veracruz 25.8 25.8 34.9 25.7 69.2 68.5 24.0 19.7 39.3 39.2 26.1 28.2 PARTNERSHIP STRATEGY FOR Yucatán 24.7 23.4 20.7 15.7 56.9 58.8 19.5 20.6 37.4 42.7 21.4 25.1 THE UNITED Zacatecas 22.9 21.1 25.6 16.7 66.6 62.9 5.9 5.1 17.8 10.9 24.9 22.3 MEXICAN STATES Source: CONEVAL using the MCS-ENIGH 2010 and 2012 121 ••ANNEX 5 TABLE 7. Percentage of population by social deprivation Multidimensional approach Vulnerable Vulnerable by No poor and no Poverty Moderate Poverty Extreme Poverty by income social deprivation vulnerable 2010 2012 2010 2012 2010 2012 2010 2012 2010 2012 2010 2012 Estados Unidos Mexicanos 46.1 45.5 34.8 35.7 11.3 9.8 28.1 28.6 5.9 6.2 19.9 19.8 Entidad federativa Aguascalientes 38.1 37.8 34.4 34.4 3.8 3.4 26.2 24.5 8.1 10.1 27.6 27.6 Baja California 31.5 30.2 28.1 27.5 3.4 2.7 37.9 37.6 6.3 8.6 24.2 23.5 Baja California Sur 31.0 30.1 26.4 26.4 4.6 3.7 32.5 30.0 4.5 7.9 31.9 32.0 Campeche 50.5 44.7 36.7 34.2 13.8 10.4 24.9 28.6 4.3 5.6 20.3 21.2 Coahuila 27.8 27.9 24.9 24.7 2.9 3.2 25.6 24.4 12.9 12.7 33.7 34.9 Colima 34.7 34.4 32.2 30.4 2.5 4.0 33.8 31.7 4.9 6.3 26.7 27.6 Chiapas 78.5 74.7 40.2 42.5 38.3 32.2 13.0 17.2 2.4 1.7 6.1 6.4 Chihuahua 38.8 35.3 32.2 31.5 6.6 3.8 22.8 27.4 13.0 10.7 25.4 26.6 Distrito Federal 28.5 28.9 26.4 26.4 2.2 2.5 34.4 32.4 5.4 6.6 31.7 32.1 Durango 51.6 50.1 41.1 42.6 10.5 7.5 21.1 21.8 8.8 11.1 18.6 17.0 Guanajuato 48.5 44.5 40.1 37.6 8.4 6.9 28.9 32.6 5.7 4.9 16.9 18.1 Guerrero 67.6 69.7 35.7 38.0 31.8 31.7 23.0 21.7 2.0 2.3 7.5 6.4 Hidalgo 54.7 52.8 41.2 42.8 13.5 10.0 27.5 30.7 4.2 3.0 13.7 13.5 Jalisco 37.0 39.8 31.8 34.0 5.3 5.8 33.7 28.3 6.2 8.1 23.0 23.8 México 42.9 45.3 34.3 39.5 8.6 5.8 32.2 29.5 5.6 7.8 19.3 17.4 Michoacán 54.7 54.4 41.2 39.9 13.5 14.4 28.6 30.7 4.3 3.5 12.3 11.5 Morelos 43.2 45.5 36.3 39.1 6.9 6.3 33.6 32.0 5.8 4.6 17.3 17.9 Nayarit 41.4 47.6 33.0 35.7 8.3 11.9 33.4 28.2 4.3 5.6 20.9 18.6 Nuevo León 21.0 23.2 19.2 20.8 1.8 2.4 31.6 29.1 8.2 8.4 39.1 39.2 Oaxaca 67.0 61.9 37.7 38.6 29.2 23.3 22.2 26.1 1.3 1.7 9.5 10.3 Puebla 61.5 64.5 44.5 46.9 17.0 17.6 21.6 22.0 5.6 4.2 11.3 9.4 Querétaro 41.4 36.9 34.0 31.8 7.4 5.2 31.7 32.6 5.0 6.4 21.8 24.0 Quintana Roo 34.6 38.8 28.2 30.4 6.4 8.4 36.1 30.4 4.7 6.2 24.6 24.6 San Luis Potosí 52.4 50.5 37.1 37.7 15.3 12.8 20.9 24.7 7.2 6.6 19.5 18.3 Sinaloa 36.7 36.3 31.2 31.8 5.5 4.5 33.3 33.5 7.7 6.4 22.3 23.8 Sonora 33.1 29.1 28.0 24.2 5.1 5.0 31.6 36.6 6.8 4.7 28.4 29.6 Tabasco 57.1 49.7 43.5 35.4 13.6 14.3 27.2 34.0 4.1 3.0 11.5 13.4 Tamaulipas 39.0 38.4 33.5 33.7 5.5 4.7 26.9 26.8 9.4 8.8 24.8 26.0 Tlaxcala 60.3 57.9 50.4 48.8 9.9 9.1 19.3 23.9 7.4 6.0 13.0 12.2 COUNTRY PARTNERSHIP Veracruz 57.6 52.6 38.8 38.4 18.8 14.3 23.6 30.6 4.5 4.0 14.3 12.8 STRATEGY FOR Yucatán 48.3 48.9 36.6 39.0 11.7 9.8 26.0 27.0 6.4 6.3 19.2 17.9 THE UNITED MEXICAN Zacatecas 60.2 54.2 49.4 46.7 10.8 7.5 18.4 20.4 6.9 6.4 14.5 19.0 STATES Source: CONEVAL using the MCS-ENIGH 2010 and 2012 122 Annex 6. Status of Gender Issues in Mexico and Entry Points to the CPS 1. In the last decade, much progress has been made Analyzing gender poverty is a complex task because in- toward greater gender equality in Mexico. On the one comes as well as inputs into multi-dimensional definitions hand, issues such as equal treatment, non-violence, equal of poverty are generally measured at the household level, law and rights, public expenditure, awareness of unpaid but there are estimates that 52 percent of women live in household work, and political participation have all been conditions of multi-dimensional poverty, compared to 48 incorporated into the public agenda. On the other hand, percent of men.44 Mexico shows improved gender outcomes in several areas: between 2005 and 2010 the average level of schooling 5. However, estimates of time poverty show noteworthy went up from 7.9 to 8.4 for women and from 8.4 to 8.7 differences with a higher incidence in women than in for men, and the proportion of women in the House of men. Women dedicate more time to unpaid activities, Deputies has increased from 17.4 percent in 2000 to 36.8 both in and outside of the household. Estimates suggest percent in the current administration. that 62.9 percent of women and 7.1 percent of men aged 15 to 64 live in conditions of time poverty. In 2. The improved gender outcomes may be related to the rural areas 76.5 percent of women live in time poverty significant increase in the allocation of public funds in conditions, compared to 59.6 percent in urban areas. the last 10 years in which the budget dedicated to gen- For men the numbers are 5.8 percent and 7.6 percent der equality has multiplied by 13.3. Also, the Federal respectively. Government has enacted several laws to protect women’s rights.43 The process of guaranteeing the rights granted by 6. Maternal mortality is also a persistent public health these federal laws is solidified through adoption of similar issue in Mexico; progress on this issue has been very slow laws and regulations at the state level. with 60 deaths per 100,000 live births in 2002 and only down to 51 in 2010. To improve maternal health, several 3. However, despite progress in promulgation of laws measures are recommended: (a) ensure that necessary and increases in budgets aimed to enhance gender resources are available to send women to specialized equality, major issues still need to be addressed. Chal- hospitals in case of emergency at the local level; (b) lenges remain on education, health (i.e., access to health the quality of medical attention should be improved; (c) services and maternal mortality rates); opportunities for training for medical personnel at a municipal level should income generation (i.e., labor markets and occupational encompass detection of risk factors; and (d) increased segregation, access to assets and financial services, use resources should be spent for prevention measures such of time); poverty levels; and women agency and gender as prenatal consultations. roles (i.e., adolescent pregnancy, gender-based violence, and political participation). 7. Between 2006 and 2011 the incidence of violence COUNTRY against women perpetrated in their last relationship PARTNERSHIP increased from 43.2 percent to 46.1 percent. Large per- STRATEGY FOR Ending Poverty centages of women (64.6 percent of separated, divorced, THE UNITED or widowed women; 70.7 percent of single; and 75.1 per- MEXICAN 4. Overall, gender-specific estimates of poverty suggest cent of married or common-law wives) do not denounce STATES that there are no big differences between women and men. physical or sexual abuse by their partner or spouse. These 123 results demonstrate that violence against women has sex and propose ways to enhance women’s grown in its every form, in spite of public action to combat agency in terms of financial literacy, access to it. services. • Labor force participation and formal sector Shared Prosperity inclusion. Include a gender dimension in the labor force discussion since fewer women than 8. Gender differences also persist in the labor market, men are economically active (44 and 81 percent, which is still highly dominated by men. In 2010, for respectively), and there is persistent occupational example, the economically active population rate for segregation and gender wage gaps. Programmatic women reached 44 percent while it was 81 percent for actions could include analysis to detect gen- men. Women are more likely to work in the informal sec- der-specific needs and demands for labor market tor: in 2012, 31.6 percent of women and 28.4 percent of policies that improve the skills level, formality, men worked in the informal sector. Also, the occupational and allocative efficiency of the labor force, in- segregation is another challenge for women’s position in cluding the National Employment System. the labor market. • Education. There are acute differences in 9. Inequality permeates Mexican society and analysis education levels of indigenous and non-indig- of gender differences within states reveals that not all enous women; indigenous women, age 15 and the states have made equal progress toward gender over, have an average of 4.5 years of schooling, equality. The level of violence against women is one compared to 8.7 years among non-indigenous example. Another one is that rural indigenous females women. The PEC could provide a channel to have considerably lower average years of schooling work on this. (4.5) than the general female population (8.4), and the school attendance among indigenous women fluctuates • Gender-based violence. This might be between 10 and 66 percent depending on the state, something to look into further, particularly as while that of non-indigenous women is between 62 and it is a key Government priority in the Mexico 73 percent. NDP, and it relates to a nationwide monitoring system. 10. Also, in spite of increased political participation at the federal level, the proportion of women in local con- • Oportunidades. In the work the Bank will gress is very low: up until 2012, only the State of Yucatán support there is mention of “a unified registry had a female governor. These inequalities are accentuated of beneficiaries to track which families are in municipal governments in that only 7.7 percent of all receiving (or not) benefits from which social 2,285 municipalities are headed by female mayors. security/assistance programs”. If this registry could collect data on an individual level (not just family), useful data would be available for Proposed Engagement Approach further analysis on gender-differentiated needs and demands. 11. The CPS will expand the World Bank’s ongoing analytical and operational activities in the area. Key • Green growth. World Bank engagement in efforts will be focused on assisting federal, state and mu- the region (and beyond) has shown that a gen- nicipal agencies responsible for gender issues to increase der-differentiated analysis of usage patterns, research and analytical work and inform well-targeted demands, and payment schemes of issues such gender policies and investments. The proposed gender as water management and energy diversifica- work program under the CPS FY14-19 is currently under tion can provide valuable insights to create active preparation and discussion within the country more adequate solutions that enhance project management and sector units as well as with clients effectiveness. and other stakeholders, and as such it has not yet been possible to define gender specific parameters for the CPS Results Matrix (Table 1). The definition of operation- and/ Portfolio Review or activity-specific gender targets and monitoring indica- tors will be completed as integral part of their respective 13. A consistent incorporation of gender issues into the COUNTRY preparation processes. World Bank’s work has proved to increase developmental PARTNERSHIP STRATEGY FOR benefits. Thus, besides high impact gender specific ini- THE UNITED 12. Some potential entry points include: tiatives at the State and Municipal level through existing MEXICAN or new operations, the World Bank will further explore STATES • Financial services/inclusion. Disaggregate and support ways to mainstream gender issues within its the number of people with bank accounts by operational work. 124 ••ANNEX 6 TABLE 1. Mexico CPS: Proposed Gender Specific Targets Indicator Gender specific target IBRD Outcome 1: Increased access to finance and improved financial inclusion Number of new clients mainstreamed into the formal Target: 1,600,000 financial sector using financial services. (800,000 female) (July 2015) IFC Outcome 3: Enhance Innovation Capabilities for SMEs and in target states and industries Number of farmers reached: Target: 7000 (3500 female) Baseline: 5,500 Target: 7,000 Interim: 6,100 IFC Outcome 5: Improved employment support for vulnerable youth Number of students enrolled in institutions financed by IFC (female) Target: 70,000 (37,000 female) Baseline: 52,000 (26,000 female) Target: 70,000 (37,000 female) Interim: 59,000 (31,000 female) IBRD Outcome 5: Improved employment support for vulnerable youth % of Oportunidades youth registered with Sistema Nacional de Empleo. Target (2018): total 2.0 % (males 2.0%, females 2.0%) Baseline: Does not exist yet Target: 2% Disaggregate by sex Source: SNE database IBRD Outcome 6: increased use of integrated social assistance programs among the poor together with increased private sector participation in the provision of social services Average unsatisfied basic needs of the extreme poor population Baseline (2012): total 3.7 (males 3.7 , females 3.6 )* Baseline (2009): 3.7 Target (2018): total 3.0 (males 3.0, females 3.0 ) Target (2018): 3.0 Source: indicator in the National Development Plan * below “bienestar mínimo”: total 20.0 (males 19.7, females 20.4) Gender mainstreaming in existing operations: • P121195: Water Utilities Efficiency Im- provement Program 14. Listed are current projects where gender-specific in- terventions can be incorporated and are being discussed • P123367:Savings and Credit Sector Loan within the country management and sector units: • P123760:Forests and Climate Change (SIL)  ompensatory Education • P101369: C • P126487: MOMET for Improved Climate  upport to Oportunidades • P115067: S Adaptation  chool Based Management • P115347: S • P077717: GEF Large Scale Renewable Development (La Venta III)  ocial Protection in Health • P116226: S • P066426:Hybrid Solar Thermal (Agua Prieta) • P106528:  Results-based Mgmt. and Budgeting • P121116:Sustainable Production Systems & ntegrated Energy Services • P088996: I Biodiversity  ustainable Rural Development • P106261: S • P095038:GEF Integrated Energy Services • P130623:  Sustainable Rural Development • P100438:GEF Adaptation to Climate Change Additional Finance • P114012:GEF Sustainable Transport & Air COUNTRY • P106424:Efficient Lighting and Appliances Quality PARTNERSHIP STRATEGY FOR • P106589:IT Industry Development Project • P131709: GEF Coastal Watersheds Conser- THE UNITED vation Project MEXICAN • P107159:Urban Transport Transformation STATES 125 Annex 7. Oaxaca Engagement: An Example of Comprehensive Engagement at Subnational Level 1. The State of Oaxaca faces enormous development unanticipated changes in financing and knowledge needs challenges and major institutional weaknesses. Oaxaca in particular sectors. is among the Mexican states with the highest levels of poverty and the lowest levels of economic performance. 4. After two years of implementation, the MoU has The state is characterized by a high illiteracy rate. Its proven to be a successful strategy to support the average income per capita at roughly US$3,400 is near reform agenda for the inclusive growth of Oaxaca. to that of Swaziland and Guatemala, but far from the The strategy has led to the following main results: Mexican average of US$8,960. With a predominantly indigenous population, Oaxaca has a highly dispersed •  Government counterparts have built up tech- population spread across a highly mountainous territory. nical capacity in the different areas of reform Service delivery is complicated by numerous municipal- (e.g., trainings and workshops in strategic sec- ities. There is limited budget flexibility and public sector tor planning, public investment, water utility management is weak. management, forestry management). •  The Bank has informed policy design and The MoU approach implementation. 2. These development challenges call for •  Resources have been mobilized leveraging multi-stakeholder and multi-dimensional support. co-financing of other organizations, such as The World Bank has been supporting the reform agenda the UNDP, the MacArthur Foundation, and for inclusive growth of Oaxaca through a strategic pro- Transparency International–Mexico. grammatic partnership since 2011. In June 2011 the Bank and the Government of Oaxaca signed a memoran- •  A concurrence of key national and local dum of understanding (MoU) that included multi-year, stakeholders has been brought together to the multi-sectoral support to the state, combining a package table to participate in a specific development of knowledge, convening, and financial services. These agenda. services were structured around four areas: (a) public sector modernization, (b) sustainable development, (c) •  Concrete and fundamental tools for efficient finance and private sector, and (d) human development. policymaking have been generated. The MoU was originally established for two years (2011- 13) and was renewed for two additional years in June 5. Several outputs have been produced from this 2013 (July 2013 – June 2015). partnership to modernize the State of Oaxaca’s public institutions and policies:  (a) design and imple- COUNTRY 3. The approach of this partnership is similar to mentation of a methodology to structure strategic sector PARTNERSHIP STRATEGY FOR a country’s CPS and represents a departure from planning oriented to results; (b) design proposals for an THE UNITED an operational or ESW-centric approach to sector integrated public financial management and public in- MEXICAN dialogue and development solutions. It recognizes vestment management systems; (c) strengthen tax admin- STATES the need to retain long-term engagement based on agreed istration capacity; (d) map existing social programs, (e) objectives and development challenges not subject to the exchange good practice approaches on reducing maternal 126 mortality, (f) support the consolidation of rural financial states of Guerrero and Chiapas. This support both at the institutions, (g) exchange good practice approaches on federal and state levels reinforces the Bank’s subnational public-private partnerships, (h) strengthen water utility engagement. management, (i) Atlas of Climate and Climate Change, and (j) exchange good practice approaches on sustainable 9. A work program with Oaxaca has been prepared development (see Table 1, Areas of Engagement). and agreed for FY14-15. The MoU is composed of 20 activities, most of which are the continuation of the 6. After two years of implementation, 10 activities work that was carried out during FY12 and FY13, and a have been concluded, 17 are under execution, set of new activities has been identified to accompany the and 3 new activities will be initiated during FY14. government efforts and strengthen its agenda such as an as- Around 70 specialists in 75 different technical missions sessment of governmental accounting harmonization status, have been to Oaxaca, either as technical experts providing the development of tourism development strategies, and a support to policy reforms or sharing experiences in sem- project on sustainable production systems and biodiversity. inars and forums that have been organized to strengthen the institutional capacity of the state. 10. Oaxaca has also expressed its interest in ex- panding the program with the Bank through a spe- 7. Sources of funding to develop the MoU include cific loan in the water sector. The Water and Sanitation Bank Budget (BB), Global Environmental Facility Sector (WSS) Modernization Program (P145578) will seek (GEF), Institutional Development Fund (IDF), and to improve the quality and sustainability of WSS services Financial Sector Reform and Strengthening Fund and WSS sector information in the State of Oaxaca. (FIRST). Development solutions to improve compet- itiveness and the business climate in Oaxaca have also 11. The Bank will continue to provide to Oaxaca been explored through the Foreign Investment Advisory with all the necessary information and technical ad- Service (FIAS), a joint facility of the International Finance vice to facilitate the participation of the state in the Corporation (IFC) and the World Bank. The IFC has also federal programs that are supported by the Bank. contributed to the promotion of public and private associ- Specifically, Oaxaca could get technical support and the ations in Oaxaca. necessary financing to improve urban transport, promote renewable energy sources, and support rural communities to sustainably manage their forests. Proposed engagement approach during the next CPS 12. The Bank’s knowledge program on Oaxaca will also be supported by Reimbursable Advisory 8. Development challenges in Oaxaca are struc- Services (RAS). Reimbursable advisory services are an COUNTRY tural and require sustained long-term support in increasingly important way for the Bank to meet Oaxaca’s PARTNERSHIP order to shift the current trends. The Bank and the demand through the provision of customized advisory STRATEGY FOR Government of Oaxaca will expand the Bank’s ongoing services. In June 2013, for example, a RAS was signed THE UNITED analytical and operational activities during the next two between the Government of Oaxaca and the World Bank to MEXICAN years. Mexico’s Ministry of Finance has also asked the contribute to the improvement of the quality and efficiency STATES Bank to expand the Oaxaca’s thematic MoU model to of the State of Oaxaca’s public expenditure management. 127 ••ANNEX 7 TABLE 1. Areas of Engagement with the State of Oaxaca by Type of Services Provided Areas of Engagement Sector Financial Services Knowledge Services Convening Services Public Sector Rapid Assessment and Action Plan (RAAP) for the Workshops on Strategic Sector Planning, Modernization State of Oaxaca (April 2011to December 2011). Public Investment, and Budgeting Proposal for improving the regulatory framework of the (October 2011 to June 2012). State Planning System (July 2012 to June 2013). Workshops on Good Practices on Tax Sectoral strategic planning guidelines Administration (July 2012 to June 2013). (January 2012 to June 2013). Country Knowledge Exchange: Results-based sectoral strategic plans: agriculture, Oaxaca – Canada in results-based water, roads, economics, forestry, tourism, livestock, management and budgeting (May 2012). fishing and housing (October 2011 to June 2013). Country Knowledge Exchange: Oaxaca – Proposal on the Institutional Design of the Public Chile to share experiences in planning, Investment System (November 2011 to June 2012). investment, budget and evaluation. Proposal on the conceptual model of a Plan on Integrated Management Information and Financial Performance and Implementation (November 2011 to June 2012). Sustainable Water and Sanitation Sector diagnostic and design of a modernization program Support to establish the Technical Advisory Development Sector Modernization for water and sanitation (June 2011 to June 2013). Council on Reducing Emissions from Program (P145578) – FY14 Atlas of Climate and Climate Change Deforestation and Forest Degradation REDD+ Integrated Energy Services (January 2012 to June 2012). (January 2012 - June 2012). (P088996) (solar energy farms in 12 communities in Oaxaca) – FY14 Urban Transport Transformation Program (P107159) – FY14 Mexico Forests and Climate Change Project (P123760) Large-scale Renewable Energy Development Project (La Venta III) (P077717) Finance and Plan for consolidation of cooperative financial institutions. Seminar on Public-Private Private Sector Report with practical recommendations to identify and eliminate Partnerships (February 2012). anticompetitive regulations (February to June 2013). Human Pilot program to reduce maternal mortality Country Knowledge Exchange Oaxaca - Peru Development (July 2011-June 2012). to share experiences in the design, Technical assistance to develop the basic education implementation and monitoring of integrated strategy of the State (Todas y Todos a la Escuela) and approaches for improving maternal and newborn action plan for implementation (April to May 2012). health (February and September 2012). Strategy to increase coverage of high school education Series of meetings between the Ministry for in rural areas and plan for the implementation of Human and Social Development (SEDESOH) and the strategy (January 2012 to June 2013). the National Council for the Evaluation of Social Analysis of the linkage between the human resources profile Development Policy (CONEVAL) to analyze the generated by the Higher Education (HE) sector and the tools used to assess social protection policies labor market in Oaxaca (January 2012 to January 2013). in the State (June to September 2012 ). Dissemination of the main findings of the study “Higher Country Knowledge Exchange on Education and Development in Oaxaca” (February 2013). micro-regional development models Inventory of social programs at the federal and between officials from SEDESOH, Jalisco’s state levels (November 2011 to June 2012). government and Honduras (January 2013). Operating Manual for the use of the inventory of social International seminar on models of programs in Oaxaca (June to December 2012). inter-municipal management with participants COUNTRY Literature review of the best practices in micro-regional from Oaxaca, Jalisco and Honduras (May 2013). development and integrated land management (January 2013). PARTNERSHIP STRATEGY FOR THE UNITED MEXICAN STATES 128 ••ANNEX 7 TABLE 2. Results Matrix – Oaxaca MoU FY14-15 World Bank Group Strategy FY14-15 WBG Intervention part of Long-term Outcome Outcome Indicator Development Solutions Theme I: Strengthening Public Finances and Government Efficiency I.1. Enhancing service delivery Outcome 1: (i) Implementation of action plans IBRD AAA: Transparency and Accountability on To introduce transparency and accountability in specific municipalities. the Water and Sanitation Sector Program (BB)* practices that contribute to the improvement in the water and sanitation sector. Outcome 2: (i) Implementation of a strategic IBRD RAS/FBS: Oaxaca Strengthening Public To strengthen the State of Oaxaca’s governance sector planning pilot program. Sector Management (P129050) (RAS/FBS) and management capacities for better results and (ii) Improvement of the planning, IBRD AAA: Oaxaca: Strengthening the State’s effectiveness of selected public institutions. investment and budget system. Management Capacities (P129968) (BB + (iii) Strengthen public sector management Institutional Development Fund - IDF) capacities on investment and budgeting. (iv) Development of technical capacities among public servants on social conflict resolution. I.2. Managing medium-term fiscal challenges at national and subnational levels Outcome 3: (i) Report on Alignment with the LCGC, IBRD AAA: Assessment of Governmental Accounting To conduct a comprehensive assessment of the MCG and other relevant normative Harmonization Status in the State of Oaxaca (BB) current status of implementation of the governmental documents issues by CONAC produced. accounting harmonization process to identify the (ii) Proposed Action Plan to address gaps, main challenges and areas of opportunities in the gaps in alignment and a capacity terms of readiness for alignment with the General development strategy presented. Law on Governmental Accounting (LGCG) and develop the institutional capacity training requirements. Theme II: Promoting Green and Inclusive Growth II.1. Reducing the footprint of growth Outcome 4: (i) Development of Integrated Transit Systems IBRD Lending: MX Urban Transport To contribute to the transformation of urban transport that reduce CO2 emissions in Oaxaca. Transformation Program (P107159) in Oaxaca toward a lower carbon growth path. II.2 Using natural resources in an optimal way Outcome 5: (i) Institutional framework modernization conducted. IBRD Lending: Oaxaca Water and Sanitation To improve the quality and sustainability of (ii) Improvement of the users’ Sector Modernization Program (P145578) Water and Sanitation Sector (WSS) services satisfaction of the service quality. IBRD Convening: Regional workshop on the and WSS information in the State of Oaxaca. (iii) Improvement of the revenues collection. Rural Water and Sanitation Sector Information (iv) Number of rural service providers strengthened. System (i.e. SIASAR in Spanish) (BB) To achieve this objective, the program will provide (v) Number of rural service providers a multi-year steady financing framework to registered in the information system. increase the legal and financial autonomy of service providers in priority areas, strengthen their operational performance, and establish the tools to collect key sector data. Outcome 6: (i) Consolidation of Priority Community- IBRD Lending: Mexico Forests and To support rural communities in Mexico Based Programs in Oaxaca. Climate Change Project (P123760) to sustainably manage their forests, build social organization, and generate additional income for forest products and services including the reduction of emissions from deforestation and degradation (REDD+). Outcome 7: (i) Rural Energy Subprojects implemented IBRD Lending: Integrated Energy Services (P088996) COUNTRY To increase access to efficient and sustainable (i.e.12 solar farms in rural areas in Oaxaca PARTNERSHIP integrated energy services in predominantly serving 500 homes and 2,000 people). STRATEGY FOR indigenous rural areas of Mexico. (ii) Technical Assistance delivered to THE UNITED increase productive uses of electricity. MEXICAN STATES 129 World Bank Group Strategy FY14-15 WBG Intervention part of Long-term Outcome Outcome Indicator Development Solutions Outcome 8: (i) Assistance in developing initial experience in IBRD Lending: Large-scale Renewable Energy To reduce greenhouse gas emissions (GHGs) commercially-based grid-connected renewable Development Project - La Venta III (P077717) and remove barriers to the development energy applications by supporting construction of renewable energy technologies and of an approximately 101 MW IPP wind farm markets, per the GEF Operation Program. and providing an electricity tariff subsidy. (ii) The Strategic Environmental Assessment of the Tehuantepec Isthmus: a key study for this Project and the development of wind energy in Mexico delivered. Outcome 9: (i) Sustainable Production Systems IBRD Lending: Sustainable Production To conserve and protect nationally and and Biodiversity Mainstreaming. Systems and Biodiversity (P121116) globally significant biodiversity in Oaxaca (ii) Producer Associations and Biodiversity- through mainstreaming biodiversity-friendly Friendly Market Initiatives implemented. management practices in productive landscapes in priority biological corridors. Theme III: Democratizing Productivity and Promoting Financial Inclusion III.1 Fostering Sound Financial Development Outcome 10: (i) Preparation of guidelines and procedures to merge IBRD AAA: Contingency plan for Cooperatives To support an orderly consolidation of cooperative or liquidate CFIs that are not in compliance with Financial Institutions (P144364) financial institutions (CFIs) in the State of Oaxaca applicable standards in order to help re-establish and advice authorities to mitigate the risks of a the soundness of a sector that caters in particular potential crisis after the March 31, 2014, deadline. to the lower income population in rural areas. (ii) Government policy/strategy informed. (iii) Design capacity strengthened. (iv) Implementation capacity strengthened. III.2 Toward a more competitive business environment Outcome 11: (i) Government policy/strategy informed. IBRD AAA: Strengthening Investment To foster enterprise creation and growth (ii) Design capacity strengthened. Climate in Oaxaca (BB). through reforms of the legal and regulatory (iii) Implementation capacity strengthened. IBRD AAA: Reforms of the legal and regulatory framework by allowing firms to easily enter framework to promote competitiveness markets, access credit, register property, build in key sectors in Oaxaca (BB). premises, compete, and exit business. To facilitate integration of foreign markets and investments by improving key procedures and regulations covered in the Doing Business Report, strengthen the competition policy framework and improve tax policies. Outcome 12: (i) Strategy of at least three tourist routes developed. IBRD RAS: Strategy to develop To revise and finalize the strategy to develop touristic routes in Oaxaca (BB). 10 touristic routes in the state. Theme IV: Increasing Social Prosperity IV.1 Promoting an integrated social protection system Outcome 13: (i) Operational assessment of Oaxaca’s micro- IBRD AAA: Improved model of Bienestar To provide technical assistance to Secretaría regional management model Bienestar, focusing based on the evaluation and exchange of de Desarrollo Social y Humano (SEDESOH) on the reduction of multidimensional poverty. experiences in Mexico and Latin America for the increase of social well-being and the (ii) Improvement of micro-regional through a knowledge community (BB). reduction of multidimensional poverty within the management model Bienestar. Bienestar micro-regional development model. (iii) Knowledge exchanges in Mexico and Latin America through a knowledge community. COUNTRY To facilitate of exchanges between SEDESOH PARTNERSHIP and successful models of local governance STRATEGY FOR for the reduction of poverty in Latin America THE UNITED (through the knowledge community MEXICAN generated at the end of FY 2013). STATES 130 World Bank Group Strategy FY14-15 WBG Intervention part of Long-term Outcome Outcome Indicator Development Solutions Outcome 14: (i) Acceleration of the reduction of IBRD AAA: Support to Health Sector To raise awareness among health officials maternal and neonatal mortality. in the State of Oaxaca (BB). about the design, implementation and (ii) Activation of support networks in monitoring of integrated approaches for communities and training of health personnel improving maternal and neonatal health in the micro-region of Valle Nacional. To promote awareness among health professionals of the micro-region of Valle Nacional on women’s rights, gender equality and intercultural issues. Outcome 15: (i) Review of health service outputs, and information IBRD AAA: Assessment of Oaxaca To assess the Oaxaca Health Services (SSO) on health outcomes in Oaxaca provided: Health Services (BB). current policies and practices, reform plans and · Quality of health care provided supported. future needs for performance improvement. · Efficiency of the service delivery supported. · Equity in access and utilization of To identify obstacles for improving the performance health services analyzed. of SSO and detail options on how to achieve better · Main causes of burden of disease health outputs and outcomes and to prepare SSO for in Oaxaca analyzed. the integration of the Oaxaca State Health System. · Information on trends in maternal and child health mortality and morbidity data provided. · Equity in health outcomes supported. IV.2 Promoting labor markets for inclusive growth Outcome 16: (i) Discussion with international experts about the IBRD AAA: Workshops with international To improve coverage of school aspects of School Education in Oaxaca delivered. experts to discuss the status of Higher education system in rural areas. (ii) Analysis of the factors affecting student Secondary Education in Oaxaca and disseminate achievement and dropout in Upper Secondary good practices in other countries (BB). To improve the guidance and information Education in Oaxaca conducted. to students of secondary education. (iii) Analysis item by item and by area of study (Spanish and Math) for each of the 638 high schools participating in ENLACE conducted. *BB = Bank Budget COUNTRY PARTNERSHIP STRATEGY FOR THE UNITED MEXICAN STATES 131 Annex 8. Selected Indicators of Bank Portfolio Performance and Management As of Date 09/30/2013 Indicator 2011 2012 2013 2014 Portfolio Assessment Number of Projects Under Implementation a 22 23 18 17 Average Implementation Period (years) b 3.2 3.0 4.1 4.6 Percent of Problem Projects by Number a, c 13.6 8.7 38.9 41.2 Percent of Problem Projects by Amount a, c 1.9 0.6 8.0 8.5 Percent of Projects at Risk by Number a, d 22.7 8.7 38.9 41.2 Percent of Projects at Risk by Amount a, d 3.8 0.6 8.0 8.5 Disbursement Ratio (%) e 47.4 30.8 46.3 1.1 Portfolio Management CPPR during the year (yes/no) Yes Yes Yes Supervision Resources (total US$) Average Supervision (US$/project) Memorandum Item Since FY 80 Last Five FYs Proj Eval by OED by Number 181 12 Proj Eval by OED by Amt (US$ millions) 34,875.7 3,060.5 % of OED Projects Rated U or HU by Number 26.9 30.0 % of OED Projects Rated U or HU by Amt 17.0 2.2 a.As shown in the Annual Report on Portfolio Performance (except for current FY). b.Average age of projects in the Bank’s country portfolio. c.Percent of projects rated U or HU on development objectives (DO) and/or implementation progress (IP). d.As defined under the Portfolio Improvement Program. e.Ratio of disbursements during the year to the undisbursed balance of the Bank’s portfolio at the beginning of the year: Investment projects only. * All indicators are for projects active in the Portfolio, with the exception of Disbursement Ratio, which includes all active projects as well as projects which exited during the fiscal year. COUNTRY PARTNERSHIP STRATEGY FOR THE UNITED MEXICAN STATES 132 Annex 9. Mexico IFC Committed and Disbursed Outstanding Investment Portfolio As of 9/30/2013 (In USD Millions) Committed Disbursed Outstanding **Quasi **Quasi FY Approval Company Loan Equity *GT/RM Participant Loan Equity *GT/RM Participant Equity Equity 2008/12 Agrofinanzas 0 3.01 0 0 0 0 3.01 0 0 0 2008 Alta growth fund 0 18.54 0 0 0 0 16.75 0 0 0 2012 Alta growth ii 0 15 0 0 0 0 0.22 0 0 0 2011 Alta ventures 0 9.92 0 0 0 0 1.69 0 0 0 0 Artha fund 0 25 0 0 0 0 13.33 0 0 0 2013 Aura solar 14.31 0 9.81 0 0 11.26 0 7.68 0 0 8/9/2006/10/11 Banco del bajio 0 58.43 0 0 0 0 57.95 0 0 0 1995/99 Baring mexfnd 0 1.7 0 0 0 0 1.7 0 0 0 2008/11 Bioparques 6.25 0 7 0 0 6.25 0 7 0 0 2012 Braskem idesa 285 0 0 0 350 152.99 0 0 0 187.88 2006 Carlyle mexico 0 5.23 0 0 0 0 3.53 0 0 0 2010 City express hol 0 14.05 0 0 0 0 14.05 0 0 0 38573 Cmpdh 22.19 0 4.04 1.1 0 22.19 0 4.04 0 0 7/3/05 Comemsa 19.65 0 0 0 0 19.65 0 0 0 0 2011 Compartamos 7.57 0 0 0 0 7.57 0 0 0 0 2013 Cs mexco 0 0 50 0 0 0 0 50 0 0 0 Darp banorte 45.36 25 0 0 0 0 0 0 0 0 2013 Edilar 0 0 14.39 0 0 0 0 5.3 0 0 2010 Eurus 31.69 0 30.81 0 24.26 31.69 0 30.81 0 24.26 2011 Evm 18.51 0 0 2.4 0 18.51 0 0 0.88 0 0 Fide santa fe 14.46 0 0 0 0 14.46 0 0 0 0 7/7/2005/11 Finem 17.04 2.62 0 0 0 11.73 2.62 0 0 0 7/4/05 Geo alpha 0 25 0 0 0 0 25 0 0 0 COUNTRY 2005 Gmac trusts 5.71 0 1.24 2.81 0 5.71 0 1.24 1.96 0 PARTNERSHIP STRATEGY FOR 9/13/08 Grupo calidra 73.18 0 0 0.74 40 45.4 0 0 0.74 17.78 THE UNITED MEXICAN * Denotes Guarantee and Risk Management Products. STATES ** Quasi Equity includes both loan and equity types. 133 Committed Disbursed Outstanding **Quasi **Quasi FY Approval Company Loan Equity *GT/RM Participant Loan Equity *GT/RM Participant Equity Equity 0 Gtsf urbi 47.27 0 0 0 0 47.27 0 0 0 0 2011 Harmon hall 0 3.15 0 0 0 0 3.15 0 0 0 2008 Hipotec vertice 0 0.27 0 0 0 0 0 0 0 0 0 Homex 69.81 0 0 0 0 69.81 0 0 0 0 2012 Hospitaria 3.41 0 6.83 0 0 3.41 0 6.83 0 0 0 Hsc trust 0 0 32.99 0 0 0 0 32.99 0 0 1998 Merida iii 12.3 0 0 0 0.73 12.3 0 0 0 0.73 2010 Metronet 0 5 0 0 0 0 0 0 0 0 2011 Mifel 0 23.63 0 0 0 0 23.63 0 0 0 2009/12 Nasoft 0 8.39 0 0 0 0 8.39 0 0 0 0 Nemak 13.16 0 0 0 0 13.14 0 0 0 0 2007 Nexxus iii fund 0 14.87 0 0 0 0 14.82 0 0 0 2013 Norson 38.32 0 0 0 0 23.32 0 0 0 0 0/03 Occidental mex 12.28 0 18.5 0 0 12.28 0 18.5 0 0 2010 Optima energia 4.2 0 0 0 0 4.2 0 0 0 0 2012 Progresemos 2.27 1.92 0 0 0 2.27 1.92 0 0 0 2012 Proteak 10 0 0 0 0 5 0 0 0 0 2002/14 Puertas finas 13.61 0 0 0 0 0.61 0 0 0 0 0 Sierra nevada 3.28 0 0 0 0 3.28 0 0 0 0 2010 Solida mt 0 48.83 0 0 0 0 15.01 0 0 0 0 Tcm retail 23.19 0 0 0 0 23.16 0 0 0 0 2012 Uag, a.c. 44.3 0 0 0 0 17.42 0 0 0 0 2013 Urbi desarrollos 50 0 0 0 0 50 0 0 0 0 0 Vertice trust 0 0 6.27 0 0 0 0 6.27 0 0 2008 Vinte 10.27 7.06 0 0 0 10.27 7.06 0 0 0 2010 Wcap finance 15.14 0 0 0 0 1.88 0 0 0 0 2010/14 Wcap holdings 0 18.14 0 0 0 0 17.23 0 0 0 0 Zn mexico ii 0 0.1 0 0 0 0 0 0 0 0 COUNTRY PARTNERSHIP Total Portfolio: 933.73 334.86 181.88 7.05 414.99 647.03 231.06 170.66 3.58 230.65 STRATEGY FOR * Denotes Guarantee and Risk Management Products. THE UNITED ** Quasi Equity includes both loan and equity types. MEXICAN STATES 134 Annex 10. Mexico Operations Portfolio (IBRD/IDA and Grants) As of September 30, 2013 Closed 235 Projects IBRD/IDA * Total Disbursed (Active) 2,885.41 of which has been repaid 0.00 Total Disbursed (Closed) 16,103.80 of which has been repaid 14,889.45 Total Disbursed (Active + Closed) 18,989.21 of which has been repaid 14,889.46 Total Undisbursed (Active) 1,493.85 Total Undisbursed (Closed) 0.00 Total Undisbursed (Active + Closed) 1,493.85 Active Projects Difference Between Last ISR Expected and Actual Supervision Original Amount in US$ Millions Disbursements a/ Rating Project ID Project Name DO IP FY IBRD IDA GRANT Cancel. Undisb. Orig. Frm Rev’d P115347 MX (APL2)School Based Management S S 2010 220 31.5 31.49 P088996 MX (CRL2) Integrated Energy Services U MU 2008 15 15.0 14.96 P101369 MX Compensatory Education S MS 2010 100 17.4 7.39 P121195 MX Efficiency Improvement Program MS MU 2011 100 87.8 P123760 MX Forests and Climate Change (SIL) S S 2012 350.0 302.2 P100438 MX GEF Adaptation to Climate Change MU MU 2011 4.5 4.4 P120654 MX GEF Efficient lighting and appliances S S 2011 57.1186 2.1 P077717 MX GEF LargeScale RE Dev (La Venta 3) MS MU 2006 25.00 24.6 22.92 P108766 MX GEF Sustain. Rural Dev MS MS 2009 10.5 9.1 P066426 MX Hybrid Solar Thermal (Agua Prieta) MU MU 2007 49.395 0.045 10.0 P106589 MX IT Industry Development Project MS MS 2009 80.0 54.5 54.53 P126487 MX MOMET for Improved Climate Adaptation S MS 2012 105.3 105.0 P106528 MX Results-based Mgmt. and Bugdeting MS MU 2009 17.2 12.76 4.3 17.00 P123367 MX Savings and Credit Sector Loan S S 2012 100.0 79.7 -20.28 P115067 MX Support to Oportunidades Project S S 2009 2753.8 286.6 -963.37 P121116 MX Sust Production Systs & Biodiversity S S 2013 11.69 11.2 P106261 MX Sustainable Rural Development MS MS 2009 100 62.8 8.14 COUNTRY P107159 MX Urban Transport Transformation Progr S MU 2010 150 138.3 PARTNERSHIP P095038 MX-GEF Integrated Energy Services U MU 2008 15 14.8 STRATEGY FOR THE UNITED P114012 MX-GEF Sust. Transp & Air Quality S MS 2010 5.378 3.3 3.26 MEXICAN Overall Result 4091.27 178.58 12.80 1264.66 -992.38 STATES 135 Annex 11. Mexico Trust Fund Portfolio MEXICO ACTIVE GRANTS AS OF AUGUST 31, 2013 Grant Usage Disbursed Available Sector Fund Trust Fund Name Source Exec.By Amount Effective Closing Type (000) (000) (000) TF010934 Mexico: Development of Profess IDF TA Recipient 345.0 76.7 268.4 04/12/2012 03/01/2015 TF097295 IDF : Mexico - Strengthening a IDF TA Recipient 306.0 267.6 38.4 02/16/2011 12/21/2013 FM TF099123 Development of an Internal Con SFLAC TA Recipient 122.0 23.8 98.2 12/08/2011 06/30/2014 TF099882 Supervision of SFLAC Developme SFLAC Bank 8.5 2.7 5.9 06/30/2011 06/30/2014 FM Total 781.5 370.7 410.9 FPD TF013928 Mexico #10288 Contingency plan FIRST Bank 124.5 46.2 47.7 01/07/2013 12/31/2013 FPD Total 124.5 46.2 47.7 TF012562 Supporting Economic Analysis o GAIDS TA Bank 100.0 11.2 3.7 06/01/2012 12/31/2013 TF012229 Seguro Popular - Fiscal Federa HRBF Bank 50.0 0.0 37.5 04/02/2012 05/01/2014 HD TF011538 Support for Improving Equity i PSIA Bank 65.0 49.2 0.7 01/09/2012 09/30/2013 TF012231 Reforming the national targeti PSIA Bank 30.0 7.1 22.9 03/19/2012 08/31/2014 TF013486 Impact Evaluation of a Low Cos SIEF Bank 177.7 9.1 168.6 10/28/2012 12/31/2016 HD Total 422.7 76.6 233.3 TF012026 Mexico Institutional Strengthe IDF TA Recipient 350.0 12.4 337.6 05/25/2012 05/25/2015 PREM TF012320 Oaxaca: Strengthening the Stat IDF TA Recipient 300.0 36.0 264.0 02/20/2013 02/20/2016 TF012498 The Distributional Effects of PSIA TA Bank 75.0 33.5 34.4 05/23/2012 11/15/2013 PREM Total 725.0 81.9 636.0 TF011024 Mexico Monterrey I LFG to Ener CARBON Recipient 2,348.4 0.0 0.0 11/08/2011 12/31/2014 TF056112 MEXICO CITY INSURGENTES BRT CARBON CF Recipient 1,962.4 1,170.9 14.7 11/19/2006 12/31/2015 TF056319 SCF -LA VENTA II WIND FARM CARBON CF Recipient 11,927.5 6,748.8 1.2 12/12/2006 12/31/2016 TF090169 MEXICO MONTERREY II PROJECT ON CARBON CF Recipient 12,184.8 6,785.4 0.0 05/17/2007 06/30/2015 SD TF014853 Development of Carbon Capture, CCS Bank 1,300.0 8.7 1,291.3 05/24/2013 12/19/2014 TF096291 CTF-MX Urban Transport Transfo CCTFIA CO Recipient 200,000.0 15,467.8 39,883.5 08/24/2009 06/30/2017 COUNTRY TF097572 MX Efficient Lighting and Appl CCTFIA Bank 107.0 15.7 91.3 07/01/2010 06/30/2014 PARTNERSHIP STRATEGY FOR TF097689 Mexico Urban Transport Transfo CCTFIA TA Bank 125.0 105.6 19.5 07/01/2010 06/30/2017 THE UNITED MEXICAN TF098062 Mexico Efficient Lighting and CCTFIA CO Recipient 50,000.0 50,058.9 180.2 11/15/2011 06/30/2014 STATES 136 MEXICO ACTIVE GRANTS AS OF AUGUST 31, 2013 Grant Usage Disbursed Available Sector Fund Trust Fund Name Source Exec.By Amount Effective Closing Type (000) (000) (000) TF011570 Mexico: Forests and Climate Ch CSCFIA Recipient 16,340.0 1,321.1 4,879.7 12/01/2011 02/28/2017 TF011648 Mexico: Forests and Climate Ch CSCFIA Recipient 25,660.0 506.8 113.3 12/01/2011 02/28/2017 TF011959 Mexico: Forests and Climate Ch CSCFIA Bank 800.0 184.5 5.5 03/29/2012 06/30/2017 TF098684 Mexico Forest Investment Progr CSCFIA TA Bank 153.9 138.7 15.3 12/15/2010 06/30/2014 TF013425 Greening Mexico’s Electricity ESMAP Bank 38.0 33.2 4.8 10/02/2012 11/30/2013 TF012908 Sustainable Production Systems GEFIA Recipient 11,688.2 492.6 81.4 07/01/2012 08/31/2017 TF056781 GEF FSP-MEXICO: LARGE-SCALE RE GEFIA TA Recipient 25,000.0 411.5 24,588.5 05/15/2006 06/30/2014 TF057033 GEF FSP-MEXICO: SOLAR THERMAL GEFIA TA Recipient 49,350.0 38,986.9 10,363.1 07/01/2008 01/31/2014 TF091733 GEF FSP-MEXICO INTEGRATED ENER GEFIA TA Recipient 15,000.0 199.4 14,800.6 12/05/2007 06/30/2014 TF093134 GEF FSP - MEXICO: SUSTAINABLE GEFIA CO Recipient 10,500.0 1,369.1 9,131.0 09/01/2008 12/31/2016 TF095695 Mexico GEF Sustainable Transpo GEFIA TA Recipient 5,378.0 2,113.7 3,264.3 01/31/2008 12/31/2013 TF096681 Mexico: Adaptation to Climate GEFIA RE Recipient 4,500.0 126.6 4,373.5 05/11/2010 10/31/2015 TF098465 Mexico Efficient Lighting and GEFIA TA Recipient 7,118.6 5,019.2 2,099.4 01/01/2010 06/30/2014 TF015160 GPOBA (W1): Mexico - TA for th GPOBA Bank 215.5 5.8 154.3 07/22/2013 08/31/2014 TF098944 GPOBA (W1): Mexico PROME / sup GPOBA TA Bank 91.0 12.7 78.4 02/02/2011 03/31/2014 TF098962 Mexico State Climate Change In SFLAC Bank 500.0 237.2 224.8 02/01/2011 02/28/2014 TF099325 Mexico Policy Framework Develo SFLAC Bank 413.0 131.7 172.6 03/01/2011 07/28/2014 TF099439 Strengthening of the Financial SFLAC TA Bank 98.0 92.6 2.7 03/24/2011 05/31/2013 SD Total 452,799.3 131,744.7 115,834.6 Grand Total 454,853.0 132,320.2 117,162.5 COUNTRY PARTNERSHIP STRATEGY FOR THE UNITED MEXICAN STATES 137 Annex 12. Mexico at Glance POVERTY and SOCIAL Latin Upper- 2011 Mexico America middle- & Carib. income Population, mid-year (millions) 114.8 589 2,490 Development diamond* GNI per capita (Atlas method, US$) 9,420 8,574 6,563 GNI (Atlas method, US$ billions) 1,081.8 5,050 16,341 Life expectancy Average annual growth, 2005-11 Population (%) 1.3 1.2 0.7 Labor force (%) 2.2 2.0 1.1 GNI Gross Most recent estimate (latest year available, 2005-11) per primary capita enrollment Poverty (% of population below 51 .. .. national poverty line) Urban population (% of total population) 78 79 61 Life expectancy at birth (years) 77 74 73 Infant mortality (per 1,000 live births) 13 16 16 Child malnutrition (% of children under 5) 3 3 3 Access to improved water source Access to an improved water 96 94 93 Mexico Upper-middle-income group source (% of population) Literacy (% of population age 15+) 93 91 94 Gross primary enrollment (% of 113 116 111 school-age population) Male 113 118 111 Female 112 114 111 KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1991 2001 2010 2011 GDP (US$ billions) 314.5 622.1 1,035.3 1,153.3 Development diamond* Gross capital formation/GDP 23.3 20.9 24.0 25.1 Trade Exports of goods and services/GDP 16.4 27.6 30.3 31.7 Gross domestic savings/GDP 20.4 18.6 22.8 23.8 Gross national savings/GDP 18.6 17.9 23.6 26.6 Current account balance/GDP -4.7 -2.8 -0.4 -1.0 Domestic Capital Interest payments/GDP 2.6 2.1 1.0 1.2 savings formation Total debt/GDP 36.3 26.7 23.6 24.9 Total debt service/exports 24.6 26.9 10.1 11.2 Present value of debt/GDP .. .. .. 17.7 Present value of debt/exports .. .. .. 54.5 Indebtedness COUNTRY 1991-01 2001-11 2010 2011 2011-15 Mexico Upper-middle-income group PARTNERSHIP (average annual growth) STRATEGY FOR GDP 3.1 2.2 5.5 3.9 3.4 THE UNITED MEXICAN GDP per capita 1.4 1.0 4.2 2.7 2.3 STATES Exports of goods and services 14.4 5.0 21.7 6.7 3.8 138 STRUCTURE of the ECONOMY 1991 2001 2010 2011 (% of GDP) Growth of capital and GDP (%) Agriculture 7.5 4.2 3.9 3.8 10 Industry 28.0 27.3 34.7 36.5 5 Manufacturing 20.6 19.6 18.1 18.3 0 -5 06 07 08 09 10 11 Services 64.4 68.6 61.4 59.7 -10 -15 -20 Household final consumption expenditure 70.5 69.6 65.4 64.3 GCF GDP General gov’t final consumption expenditure 9.1 11.8 11.8 11.9 Imports of goods and services 19.3 29.8 31.5 33.0 1991-01 2001-11 2010 2011 (average annual growth) Agriculture 1.6 1.2 2.9 -3.0 Growth of capital and GDP (%) Industry 3.9 1.6 6.2 4.0 30 Manufacturing 4.4 1.5 9.9 5.2 20 10 Services 3.0 2.6 5.4 4.3 0 -10 06 07 08 09 10 11 -20 Household final consumption expenditure 2.6 2.8 5.0 4.5 -30 General gov’t final consumption expenditure 1.6 1.4 2.4 0.6 Exports Imports Gross capital formation 4.8 1.0 8.6 4.0 Imports of goods and services 12.2 4.9 20.5 6.7 PRICES and GOVERNMENT FINANCE Inflation (%) 1991 2001 2010 2011 2012 Domestic prices 6.5 (% change) 5.5 Consumer prices 22.7 6.4 4.2 3.8 3.6 4.5 Implicit GDP deflator 23.3 5.9 4.2 5.4 4.6 3.5 Government finance 2.5 (% of GDP, includes current grants) 2055 2006 2007 2008 2009 2010 2011 2012 Current revenue 26.7 21.8 22.6 22.7 22.7 CPI GDP deflator Current budget balance 6.3 0.4 2.4 2.1 2.1 Overall surplus/deficit 1.7 -3.2 -3.5 -2.7 -2.6 COUNTRY PARTNERSHIP STRATEGY FOR THE UNITED MEXICAN STATES 139 TRADE 1991 2001 2010 2011 2012 (US$ millions) Total exports (fob) 42,688 158,443 298,860 349,946 370,706 Oil 8,166 12,799 41,693 56,385 52,892 Export and Import levels (US$ mill) Agriculture 2,373 3,903 8,610 10,309 10,914 400,000 350,000 Manufactures 31,602 141,353 245,745 278,617 301,993 300,000 Total imports (cif) 49,967 168,396 301,744 350,843 370,752 250,000 200,000 Food .. .. .. .. .. 150,000 Fuel and energy .. .. .. .. .. 100,000 50,000 Capital goods 8,588 22,496 30,247 35,032 38,568 0 2005 2006 2007 2008 2009 2010 2011 2012 Exports Imports Export price index (2000=100) 86 98 153 173 169 Import price index (2000=100) 88 101 137 146 148 Terms of trade (2000=100) 97 97 111 118 114 BALANCE of PAYMENTS 1991 2001 2010 2011 2012 (US$ millions) Exports of goods and services 51,478 171,440 314,115 365,340 387,291 Imports of goods and services 60,508 184,614 327,720 381,418 401,362 Current account balance to GDP (%) Resource balance -9,030 -13,174 -13,605 -16,078 -14,071 2005 2006 2007 2008 2009 2010 2011 2012 0 -0.2 Net income -8,608 -13,861 -10,999 -17,694 -20,174 -0.4 Net current transfers 2,991 9,338 21,537 22,974 30,128 -0.6 -0.8 -1 Current account balance -14,647 -17,697 -2,519 -10,347 -11,410 -1.2 -1.4 -1.6 Financing items (net) 22,640 25,035 -18,303 -17,548 … -1.8 Changes in net reserves -7,993 -7,338 22,759 28,621 17,841 Memo: Reserves including gold (US$ millions) 17,772 44,814 120,587 149,208 149,208 COUNTRY PARTNERSHIP Conversion rate (DEC, local/US$) 3.0 9.3 12.6 12.4 12.4 STRATEGY FOR THE UNITED MEXICAN STATES 140 EXTERNAL DEBT and RESOURCE FLOWS 1991 2001 2010 2011 2012 (US$ millions) Total debt outstanding and disbursed 114,220 165,914 243,824 287,037 257,399 IBRD 11,928 10,883 12,462 13,590 14,001 IDA 0 0 0 0 0 Total debt service 13,567 47,512 32,489 42,090 41,061 IBRD 1,815 2,173 440 1,056 592 Composition of 2011 debt (US$ mill.) IDA 0 0 0 0 0 4,886 9,922 4,377 Composition of net resource flows 13,590 Official grants 46 65 286 .. .. 202,927 Official creditors 1,327 -652 4,542 2,674 83 51,335 Private creditors 2,984 10,543 23,713 19,118 .. Foreign direct investment (net inflows) 4,761 25,523 6,819 9,465 -11,872 A - IBRD B - IDA C - IMF D - Other multilateral Portfolio equity (net inflows) 6,331 5,010 31,432 45,946 73,173 E - Bilateral F - Private G - Short-term World Bank program Commitments 2,532 508 4,772 952 .. Disbursements 1,581 749 2,449 2,072 .. Principal repayments 954 1,309 194 809 .. Net flows 628 -561 2,256 1,264 .. Interest payments 861 864 246 247 .. Net transfers -234 -1,425 2,010 1,017 .. Notes: 2011 data are preliminary estimates. This table was produced from the DEC LDB database and could differ from poverty official data. * The diamonds show four key indicators in the country (in bold) compared with its income-group average. If data are missing, the diamond will be incomplete. This table was produced from the Development Economics LDB database. COUNTRY PARTNERSHIP STRATEGY FOR THE UNITED MEXICAN STATES 141 Annex 13. Mexico – Social Indicators Latest single year Same region/income group   Latin America Upper-middle 1980-85 1990-95 1999-05 2006-11 & Caribbean income Population Total population, mid-year (millions) 72.5 88.3 102.6 111.3 585.0 2327.9 Growth rate (%annual average for period) 2.1 1.8 1.3 1.3 1.2 0.8 Urban population (% of population) 67.6 72.4 75.4 77.4 34.6 23.6 Total fertility rate 4.3 3.2 2.5 2.4 2.3 1.9 Poverty National headcount index 53.0 52.8 49.5 47.2     Urban headcount index   42.8 41.1 40.4     Rural headcount index   67.9 63.2 58.4     Income GNI per capita (constant 2005 US$) 6,248.7 6,323.8 7,237.3 7,880.8 5305.3   Consumer price index (2000=100) 0.5 28.2 94.6 101.8     Food price index (2000=100)             INCOME/CONSUMPTION DISTRIBUTION  Gini Index 46.3 51.5 49.2 48.2     Lowest quintile ( % of income or consumption) 51.7 56.5 54.2 53.7     Highest quintile (% of income or consumption 4.7 4.1 4.3 4.8     SOCIAL INDICATORS Public expenditure             Health (% of GDP)   2.2 2.5 2.8 7.4 5.9 Education (% of GDP)   3.4 5.0 4.9 4.4 4.7 Net primary school enrollment rate (% of age group)  COUNTRY PARTNERSHIP Total 98.8 99.5 97.5 98.0 95.6 95.6 STRATEGY FOR THE UNITED Male     97.3 97.9 95.9 95.5 MEXICAN STATES Female     97.7 98.1 95.2 95.8 142 Latest single year Same region/income group   Latin America Upper-middle 1980-85 1990-95 1999-05 2006-11 & Caribbean income Access to an improved water source (% of age group) Total   86.2 91.4 94.6 93.2 91.2 Urban   93.5 95.3 96.2 79.6 83.0 Rural   67.0 80.0 88.4 97.1 97.4 Immunization rate  (% of children ages 12-23 months)             Measles 35.5 85.2 95.6 95.8 93.9 94.2 DPT 43.3 82.5 97.3 96.4 92.1 93.5 Child malnutrition (% under 5 years)     6.0 3.4     Life expectancy at birth (years)  Total 67.7 71.8 74.8 76.2 73.8 72.4 Male 64.4 69.1 72.4 73.8 70.7 70.3 Female 71.1 74.6 77.3 78.7 77.0 74.7 Mortality Infant (per 1,000 live births) 49.8 34.7 21.7 15.3 18.4 19.5 Under 5 (per 1,000 live births) 64.5 43.9 26.1 18.2 22.1 24.2 Adult (15-59)             Male (per 1,000 live births) 216.0 187.0 152.4 137.6 185.9 166.8 Female (per 1,000 live births) 135.0 117.0 85.5 76.1 100.6 104.0 Maternal (per 100,000 live births)   88.5 68.0 50.0 80.0 64.0 Births attended by skilled health staff (%)   83.8 95.0 94.1 85.8 95.9 This table was produced from the CMU LDB system. Due to methodological differences and time lags, data may differ from official estimates. Note: 0 or 0.0 means zero or less than half the units shown. Net enrollment: break in series between 1997 and 1998 due to change from ISCED76 to ISCED97. Immunization: refers to children ages 12-23 months who received vaccinations before one year of age or at any time before the survey. COUNTRY PARTNERSHIP STRATEGY FOR THE UNITED MEXICAN STATES 143 Annex 14. Mexico Key Economic Indicators Indicator 2010 2011 2012 2013* 2014* National Accounts annual real percent change, unless noted GDP 5.1 4.0 3.8 1.5 3.5 Consumption 4.6 4.0 3.1 2.0 3.3 Investment 0.3 8.1 5.9 0.6 5.9 Exports 21.6 7.5 4.6 2.6 4.8 Imports 19.6 7.1 4.1 3.1 5.8 External Accounts in US$ billions, unless noted Exports 298.5 349.4 370.7 380.4 402.4 Oil 41.7 56.4 52.9 49.7 46.5 Non-Oil 256.8 293.0 317.8 330.7 355.9 Imports 301.5 350.8 370.8 386.0 410.3 Worker Remittances 21.3 22.8 22.4 21.5 22.0 Current Account -3.2 -11.8 -14.2 -19.1 -21.5 Current Account (as % of GDP) -0.3 -1.0 -1.2 -1.5 -1.5 Direct Investment (liabilities) 21.9 21.6 13.4 29.1 22.3 Portfolio Investment (liabilities) 37.3 40.6 81.3 24.2 17.5 Gross Reserves (year-end) 113.6 142.5 163.6 174.2 185.8 Public Finance as a percentage of GDP, unless noted Total Revenues 22.6 22.7 22.7 21.6 21.8 Oil 7.4 7.7 7.6 7.3 7.0 Non-Oil 15.2 15.1 15.0 14.3 14.8 Tax 10.1 10.0 9.8 9.9 10.3 Non Tax 1.4 1.2 1.4 0.7 0.9 Public Enterprises 3.8 3.9 3.9 3.7 3.7 Public Expenditure 25.5 25.2 25.3 24.0 25.3 Current Expenditure 20.4 20.3 20.5 19.4 20.7 Capital Expenditure 5.1 4.9 4.9 4.6 4.6 PSBR 3.5 2.7 3.2 2.9 4.1 Net Public Sector Debt 32.2 33.7 34.5 39.0 40.5 Prices Inflation (e.o.p) % 4.4 3.8 3.6 3.5 3.5 Oil price (Mexican mix, US$ per barrel) 72.1 100.9 102.1 98.0 96.8 COUNTRY PARTNERSHIP STRATEGY FOR THE UNITED MEXICAN STATES 144 Annex 15. Mexico Key Exposure Indicators Indicator 2008 2009 2010 2011 2012 Total debt outstanding and disbursed (TDO) (US$m)\a 206,738.6 199,944.3 243,823.6 287,037.3 257,398.5 Net disbursements (US$m)\a 9,138.2 14,524.3 33,358.1 31,115.4 (29,638.7) Total debt service (TDS) (US$m)\a 35,450.9 31,846.3 32,489.0 42,089.5 41,061.4 Debt and debt service indicators (%) TDO/XGS\b 65.0 79.4 75.0 76.4 64.6 TDO/GDP 18.9 22.6 23.6 24.8 21.9 TDS/XGS 11.1 12.6 10.0 11.2 10.3 IBRD exposure indicators (%) IBRD DS/public DS 3.6 5.1 2.2 5.4 2.2 Preferred creditor DS/public DS (%) \c 6.9 8.8 6.1 9.8 4.3 IBRD DS/XGS 0.3 0.4 0.1 0.3 0.1 IBRD TDO (US$m) \d 5,566.6 10,142.6 12,461.6 13,590.4 14,706.2 Share of IBRD portfolio (%) 5.7 9.3 9.5 10.2 10.4 \a Includes public and publicly guaranteed debt, private non-guaranteed, use of IMF credits and net short-term capital. \b XGS denotes exports of goods and services, including worker’s remittances. \c Preferred creditors are defines as IBRD, IDA, regional multilateral development banks, IMF and the Bank for International Settlements. \d Includes present value of guarantees. \e Includes equity and quasi equity types of both and equity instruments. COUNTRY PARTNERSHIP STRATEGY FOR THE UNITED MEXICAN STATES 145 Endnotes 1. Annex 5 provides a detailed description of both Mexican and World Bank’s methodologies for measuring poverty, as well as detailed data tables with poverty rates by state and by method. 2. One limitation of analyzing the official Multi-dimensional Poverty Index is that there are only three years with available data: 2008, 2010, and 2012. Thus, in order to study long-term poverty trends it is necessary to use a monetary poverty indicator, which was the previous official poverty measure in Mexico and which is still produced by CONEVAL 3. Analysis about mobility and middle class in Mexico and the region can be found in “Economic Mobili- ty and the Rise of the Latin American Middle Class” at http://www.worldbank.org/en/news/feature/2012/11/13/ crecimiento-clase-media-america-latina. 4. Annex 4 includes the overview chapter of the policy notes prepared in 2011-12 by World Bank staff. The complete set is accessible at http://www.worldbank.org/en/country/mexico/research/all. 5. Annex 3 contains a section on recent economic events and the macroeconomic outlook. 6. Refer to “Fostering sound financial sector development”, Policy Note No.1; “Toward a more competitive business environment”, Policy Note No. 2; “Fostering innovation for productivity and competitiveness”, Policy Note, No.3. 7. Refer to “Labor Markets for Inclusive Growth”, Mexico Policy Note No.4. 8. The OECD launched the Programme for International Student Assessment (1997) to evaluate education systems. 9. The largest insurance programs in Mexico are the Instituto Mexicano de los Seguros Sociales (IMSS), the Instituto de Seguridad y Servicios Sociales de los Trabajadores del Estado (ISSTE) and Régimen Estatal de Protección Social en Salud (Seguro Popular). Refer to “Social Protection”, Mexico Policy Note No.5. 10. Gender differences in poverty, as well as additional information about gender as entry points to the CPS can be found in Annex 5 and 6. 11. Refer to “Managing medium term fiscal challenges”, Mexico Policy Note No. 8; “Strengthening public revenue and expenditure management to enhance service delivery”, Mexico Policy Note No. 9; and “Strengthening sub-national public finance”, Mexico Policy Note No.10. 12. Refer to “Reducing the footprint of growth”, Mexico Policy Note No. 6; and “Using natural resources in an optimal way”, Mexico Policy Note No. 7. 13. Banco de información Económica (INEGI, 2012). 14. World Bank estimate, forthcoming, Análisis de Equilibrio Económico General de la Reducción de los Subsidios a los combustibles en México. 15. OP/BP 10.00 retired the use of Adaptable Program Loans in April 2013. 16. Following Mexico’s Multi-dimensional Poverty Index, the assessment identifies whether WBG interventions have a high, average or low expected impact on income poverty or on the access to any of the basic needs that are reflected in the multi-dimensional index (i.e., housing, infrastructure, education, health, social security and food security). A high value represents areas where the initial expected direct impact could be on both the income side and the access to basic needs consistent with the Mexico multi-dimensional index. In other words, this refers to strategic areas on which WBG interventions could have a direct impact on “extreme poverty”, defined as population with monetary income below the ‘minimum welfare’ line and with at least three deprivations. An average value reflects areas where the initial impact could be either on the income side or on the access to basic needs. Finally, a low value refers to areas that may not necessarily have an expected direct impact on the income or the basic needs sides (i.e. a direct impact on the extreme poor). 17. Shared prosperity focuses on income growth of the bottom 40 % of the population; ‘average’ or ‘low’ indicates the WBG’s impact on economic growth in general. ‘High’ indicates impact on specific target groups within the bottom 40%. 18. A sharp GDP contraction was largely the result of a collapse in external demand and international trade. Exports and imports fell 13.7 percent and 18.6 percent, respectively, in 2009. Between October 2008 and June 2009, Mexico lost almost a million jobs. 19. Between 2006 and 2010, the moderate poverty rate increased from 42.7 percent to 51.3 percent (to 57.7 million people) and the extreme poverty rate increased from 13.8 percent to 19.8 percent (to 21.2 million people). 20. When considering economic losses due to crime, victimization surveys estimate that in 2010 alone, crime costs victims losses of US$12.9 billion, and additional health expenses of US$619 million (INEGI Encuesta Nacional de Victimización COUNTRY y Percepción sobre Seguridad Pública (ENVIPE), INEGI, Mexico (2011a, 2012b). Moreover, empirical evidence also PARTNERSHIP STRATEGY FOR suggests that municipalities with higher levels of drug-related crimes in 2007 have grown at a slower pace between 2005 THE UNITED and 2010 than municipalities less affected by this shock (Lopez-Calva, L. F, Rodriguez-Castelan, C., and K. Scott (2012). MEXICAN Brief Cost and Impacts of Crime and Violence in Mexico. Washington, D.C.: The World Bank -- Mimeo). STATES 21. OP/BP 10.00 retired the use of Adaptable program Loans in April 2013 22. The Second Programmatic Upper Secondary Education Development Policy Loan (P126297) and the Upper Secondary 146 Education Development Policy Loan (P112262). 23. OP/BP 10.00 retired the use of Adaptable program Loans in April 2013 24. OP/BP 10.00 retired the use of Adaptable program Loans in April 2013 25. A comparative analysis of childcare programs was conducted seeking to compare international standards in the pro- vision of childcare services to the Mexican model. Preliminary findings highlighted the fact that Programa de Estancias Infantiles was focused on female labor force participation rather than in ECD. Recommendations to the client were provided in order to increase the impact of the country’s program. 26. Refer to Note on Cancelled Operation (World Bank Report Number NCO 00001902). 27. Against a baseline stockpile of 1.2 million in October 2009 and equal to a target of 2.1 million by June 30, 2012. 28. Baja California Sur, Chiapas, Chihuahua, Estado de México, Guerrero, Hidalgo, Tabasco, Veracruz and Yucatán. 29. Several factors have contributed to this situation. For instance, the increase in urbanization in Mexico places a tremendous strain on urban services, such as the urban transport and electricity networks. Water and sanitation services are subject to the capacity of state and municipal operators and thus vary greatly in quality and coverage across regions in Mexico. 30. Report from PROTRAM received by the World Bank on July 22, 2011. 31. Proof of this was the approval and publication of the PECC (Special Program for Climate Change) in Mexico’s official Gazette in August 2009, which was fundamental to creating a comprehensive policy framework for reduction of emissions across sectors. 32. Key changes in government policy include (a) delays in subsidies payments and in decision-making processes in the funding and operation of the government-sponsored mortgage agencies; (b) shift from horizontal to vertical housing, which requires more working capital for homebuilders; and (c) additional government requirements for homebuilders to offer sustainable housing. 33. The sector strategy goal is to achieve 12 GW of wind generation by the year 2020. 34. The package of advisory and analytical work included (a) just-in-time advice to SEDESOL on the strategy to promote local and regional socio-economic development in the southern states of Mexico, enhancing the capacity of the poorest states and municipalities to pursue green growth; (b) an SFLAC fund to design municipal indices and a sustainable local development guide that enhanced policy dialogue and included policy actions targeting sustainable territorial develop- ment at the municipal level; and (c) a Poverty and Social Impact Analysis (PSIA) exercise that helped enhance the quality of the DPL operation by providing critical analysis and a strong foundation for a more effective and informed engagement on climate change adaptation for poverty reduction. 35. The SINAVE index comprises measures for three of its four sub-systems, including nine different elements, as follows: (1) the system for the weekly notification of reportable diseases; (2) the sentinel health facility surveillance system; (3) the surveillance system for acute flaccid paralysis; (4) the surveillance system for acute febrile illness; (5) the surveillance system for HIV/AIDS; (6) the surveillance system for diabetes; (7) the surveillance system for neural tube defects; (8) the registry system for malignant neoplasms, and (9) the surveillance system for addictions. Examples of indicators for these elements include: the percentage of medical centers reporting cases in a timely manner, the number of consecutive weeks of reporting, the number of notified cases of specific diseases among children, the percentage of samples drawn according to standards and percentage of probable cases tested in a timely manner. Data for these indicators is provided by health facilities, sentinel sites and laboratories across the country and consolidated by the SINAVE at the federal level. 36. This compendium does not discuss economic and social challenges related to citizen security. Parallel research efforts are being launched to shed light on trends of citizen insecurity and their implications for inclusive and sustainable growth in Mexico. 37. In terms of purchasing power parity (PPP) adjusted GDP per capita. 38. Evidence based on the US manufacturing sector shows that increasing an industry’s intensity in R&D by 1 percentage point increases the growth rate of output per worker in that industry by between 0.08-0.16 percentage points (Zachariadis, 2003). 39. The middle class headcount is the number of individuals with daily incomes between 10 and 50 dollars (in 2005 US dollar, PPP terms). They fall approximately between the 66th percentile to 98th percentile in the household survey (World Bank, 2012b). 40. Environmental Indicators (UNEP 2007). 41. There are a number of measures that identify and emphasize different aspects of the environment such as resource exhaustion, pollution, or impacts on health and economic activity 42. For example, Ley General para la Prevención y Gestión Integral de los Residuos y su Reglamento y sus Normas Oficiales Mexicanos; Programa Nacional para la Prevención y Gestión Integral de los Residuos 2009-2012. Secretaría de COUNTRY Medio Ambiente y Recursos Naturales (SEMARNAT). PARTNERSHIP 43. Examples are Federal Law to Prevent and Eliminate Discrimination (LGPED-2003), the General Law on Equal- STRATEGY FOR ity between Men and Women (LGIMH-2006), and the General Law on Women’s Access to a Life Free of Violence THE UNITED (LGAMVLV-2007) MEXICAN 44. Chávez, M., A. Ortega, and A.G. Santana. Pobreza multidimensional con perspectiva de género. Versión electrónica. STATES (2010) 147 COUNTRY PARTNERSHIP STRATEGY FOR 148 THE UNITED MEXICAN STATES Map of Mexico bancomundial.org.mx