Economic Recovery Plans in Mexico Have Mixed Signals for Climate Change Efforts

As of April 2020, when this article was written, Mexico has implemented several economic measures that have been considered by many in the private sector as insufficient. According to the Finance Secretary, it is estimated that the country will face a drop of 3.9% of its Gross Domestic Product (GDP) during 2020. Initially, those sectors that have been more affected are retail stores, restaurants, transportation, and tourism where approx. 32.7% are employed in the country.

The World Health Organization (WHO) considers Mexico to be in the stage of local transmission of COVID 19 which increases stresses on the public health system and risks for the economy. The total number of cases registered are 8,261 confirmed, 10,391 suspicious, and 31,170 negatives according to the official daily briefing. The number of cases is expected to increase in the coming days. As far as the purchasing of medical equipment, Mexico has purchased 2.9 million surgical masks and 28,600 goggles along with medicine, ventilators, and other PPE from China.

According to the World Resources Institute (WRI), as the COVID-19 pandemic continues, the world’s energies are rightly focused on efforts that contain the virus and manage the economic recession. However, in the background, the climate emergency remains, and climate exacerbated shocks may overlap with the crisis further disrupting efforts to contain the virus, stretching overwhelmed emergency services, and delaying economic recovery. This is why investment in COVID-19 response and climate change resilience must work together and reinforce each other rather than compete for resources.

On April 5th, Mexico’s President, Andrés Manuel López Obrador (AMLO), announced the Economic Reactivation Plan which was criticized by experts and public opinion leaders. The proposal has been criticized for omitting to contemplate the business sector and underestimating the effect of the crisis which some predict could contract the Mexican economy by 10%.

The formula AMLO announced during the press conference is the sum of three basic elements: more public investment for social and economic development, full employment, and honesty and austerity. The president aims at limiting public debt and focusing efforts on economic measures that will protect the poor. The majority of the budget destined to overcome the crisis will come from emergency funds and the Income Stabilization Fund. The President also announced that millions of low-income families will receive economic subsidies, pensions will be paid in advance for the next four months to support the elderly, over 450,000 credits will be available for small businesses, and the reforestation program and apprentice’s program will be strengthened.

As indicated by WRI, rapid access to financial support is critical as part of a post-disaster response to get much-needed aid delivered to the communities that need them the most by providing cash to supplement income. These emergency cash transfers can help people avoid dangerous choices between safeguarding their health and the health of others and earning enough to pay for basic necessities.

The International Monetary Fund (IMF) also commented on the economic measures package presented by Mexico, deeming it the smallest compared to other economies in the region, considering that the country will be one of the most affected. According to one of the directors, the measures amount to less than 1% of Mexico’s GDP when countries like Peru or Brazil are committing to 12% and 10% respectively. When fiscal accounts are being adjusted to the new reality by adding stimuli, the Mexican government insists on limiting debt, consuming assets, and reducing expenses.

Governors of four of the most productive states: Nuevo Leon, Jalisco, Coahuila, and Tamaulipas have made declarations against the Federal Fiscal Pact. They claim that more resources should be allocated to states that contribute more to the Federation and that a national economic convention is needed immediately to review the fiscal pact. It appears that the government is centered on containing the negative effects of fiscal metrics, protecting social expenses, and reinforcing PEMEX (the Mexican oil company).

As mentioned in previous posts, Mexico pledged to reduce its greenhouse gas emissions (GHG) by 22-36% by 2030 as part of its National Determined Contribution (NDC) to the Paris Agreement. But the AMLO administration has set PEMEX and the construction of a new refinery as the center of its energy plan and economic reactivation. According to a study by WRI, a clear decarbonization plan could help the country cut emissions by 31% by 2030 while saving $5 billion in overall costs and preventing 26,000 premature deaths. Three sectors appear to be key: electricity, transportation, and industry since they contribute to 64% of all emissions reductions. Even though PEMEX may need resources to weather the crisis, the longer-term investment in renewables and more efficient energy sources should not be forgotten by the government.

Barclays has classified Mexico’s strategy of not providing stimulus to the industrial sector as a risky move considering that fiscal policy could damage growth even more, especially when all of Latin America is adjusting its fiscal accounts. A stimulus to the industrial sector is needed and must not be in exchange for relaxing emission objectives the country means to achieve. One should not come in detriment of the other and the situation should be used to rebuild a more resilient society.

Billions of dollars will flow into the healthcare sectors as part of the response to the pandemic around the world. The resources, of course, need to address immediate shortages of medical personnel, equipment, and testing. Investments will also go to strengthening the healthcare infrastructure, IT, and surge capacity. These investments could help make communities more resilient to the pandemic and climate change-related illnesses. Mexico should take advantage of this to improve healthcare services in the country, especially in the areas where the population is most vulnerable.

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The lack of access to essential services like water, housing, and health have exacerbated or have made it impossible that millions of vulnerable people adequately follow the measures imposed to diminish the transmission of COVID-19.

All measures must take into consideration resources that will improve the infrastructure and access to the essential services to all citizens. Short term incentives in the form of cash, though necessary in the initial phase to quickly compensate those who are unable to work, will not be sufficient. Medium and long-term measures that positively impact communities and populations in their relationships with the environment are necessary.

Also necessary is the open dialogue and inclusion of the business sector to collaborate and create measures that will enable economic reactivation and employment in the medium and long term.

We ask the current government to ensure that its economic measures to address the COVID-19 crisis truly include all sectors needed to ensure the wellbeing of its citizens as well as ensure the medium and long-term measures to enable the economic recovery and are consistent with national climate goals and commitments.

Contact Information:

Secretary of Industry, Commerce and Competitiveness- Dr. Ernesto Acevedo Fernández

Emails: atencion.ciudadana@semarnat.gob.mx
Website: contacto.ciudadano@economia.gob.mx
Telephone: +52 55 5729 9100
Address: Pachuca 189, Colonia Condesa, Cuauhtémoc, 06140 Ciudad de México, CDMX, Mexico

Secretary of Environment and Natural Resources- Victor Manuel Toledo

Emails: atencion.ciudadana@semarnat.gob.mx
Website: https://www.gob.mx/semarnat
Telephone: 54900900 Ext. 12000/12076/12001
Address: Ejercito Nacional 223,Col. Anáhuac, Delegación Miguel Hidalgo,

Ciudad de México, México, Z.C. 11320

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This Post was submitted by Climate Scorecard Mexico Country Manager Patricia Prat