Summary: Context: Mexico has navigated successfully a complex external environment, characterized by falling commodity prices, a sharp appreciation of the U.S. dollar, and heightened volatility in international financial markets. The economy continues to grow at a moderate rate and inflation is close to the target. Looking ahead, activity should be supported by strengthening external demand and by the implementation of the structural reforms. The main external risks are negative surprises to U.S. growth, or a renewed surge in capital flow volatility caused by uncertainty related to the path of U.S. monetary policy or by adverse developments in key emerging market economies. Policies: Macroeconomic policies are focused on maintaining strong fundamentals and safeguarding financial stability. The authorities remain committed to a gradual reduction of the fiscal deficit over 2015–18, which would set the ratio of public debt to GDP on a downward path. The accommodative stance of monetary policy has helped support growth, while inflation is low and stable. Continued steady implementation of the structural reforms would boost potential growth in the medium term. FCL: The fifth arrangement with Mexico under the FCL in the amount of SDR 47.292 billion (1,304 percent of quota) was approved on November 26, 2014.Qualification: In staff’s view, Mexico continues to meet the qualification criteria for access to FCL resources specified under the corresponding Executive Board decision. Staff recommends that the Board completes the review under the FCL arrangement, which would allow Mexico to make purchases before the expiration of the arrangement on November 25, 2016. The authorities intend to continue treating the arrangement as precautionary.

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