Mexico needs a comprehensive fiscalreform to alleviate the looming medium-term pressures on itsbudget. This policy note contributes to the debate onMexico's looming fiscal challenges. The country'sfiscal framework, centered on the 2006 budget and fiscalresponsibility law, and prudent fiscal risk management hashelped maintain short-term budget stability and a fairlystable public debt path, even in times of economicvolatility. However, Mexico faces serious longer term fiscalchallenges that are not always recognized, measured, andaddressed in policy debates, which tend to focus onapproving the annual budget. And though Mexico has adoptedseveral policies to mitigate oil-price volatility on thebudget, oil production has fallen substantially over thepast few years, drawing renewed attention to the longer termchallenge of replacing part of the oil-related publicrevenue base with other, more permanent sources of revenue.Further, spending pressures associated with increasingaging-related spending, public investment, and socialspending needs call for a discussion of the fiscalimplications of additional impending outlays. Mexico'sfalling oil revenue and rising public spending needs overthe medium term require increased tax revenue and moreefficient and better targeted public spending. Looking moreclosely at this medium- and long-term revenue and spendingtrends and publishing a medium-term budget outlook wouldallow for long-term budget planning.
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