Introduction
The recent report by Mexico’s National Institute of Statistics and Geography (INEGI) brings good news regarding the decrease in both moderate and extreme poverty. However, there are still significant challenges that need to be addressed.
Poverty Reduction Figures
Moderate poverty dropped from 41.9% of the population in 2018 to 29.6% in 2024, while extreme poverty fell from 7% in 2018 to 5.3% in 2024. Despite this progress, 38.5 million people experienced moderate poverty and 7 million faced extreme poverty in 2024.
The number of non-poor, non-vulnerable individuals increased from 23.5% in 2018 to 32.2% in 2024, accounting for 42.3 million people. However, challenges remain, such as the rise in the population lacking access to social security and 29.6% of the population experiencing multidimensional poverty.
Factors Contributing to Poverty Reduction
Two primary factors led to the reduction in poverty due to income:
- Increased labor income: This was mainly due to aggressive wage increase policies, which may not be sustainable in the future without significant productivity improvements.
- Governmental transfers to families: These came in two forms – remittances from migrants working abroad (mainly in the US) and government social programs targeting various demographics. The accumulated remittances between 2019-2024 totaled $318.3 billion.
However, future remittances will depend on the US economy’s growth and migration policies. Government social program transfers, aimed at reducing poverty, have increased significantly in 2023-2024 but came at the cost of reduced funding for education and healthcare, affecting 44.5 million individuals’ access to healthcare services.
Future Implications
Financing these programs will incur an increasing opportunity cost, especially since many are constitutionally recognized as “rights” subject to inflation-linked adjustments. If government income growth falls short of program funding, particularly pensions for adults, it will lead to further cuts in education, healthcare, and public investment, negatively impacting economic growth potential.
While transfers help alleviate poverty stemming from low incomes, they are not a structural solution. To permanently reduce poverty, the economy must grow at relatively high and sustained rates, creating more jobs with real wage growth driven by increased productivity.
Unfortunately, current economic growth prospects are gloomy, with a best-case scenario of 0.5% growth this year.
Government’s Role in Economic Growth
Although the government acknowledges growth as a policy objective, it fails to provide economic agents with an institutional framework (organizations, laws, and regulations) that encourages private investment and technological advancement to boost productivity – the main drivers of economic growth.
It seems the government prioritizes maintaining a loyal electoral clientele dependent on transfers rather than fostering conditions for genuine economic progress, potentially perpetuating poverty.
Key Questions and Answers
- What is the current state of poverty in Mexico? While there has been progress in reducing both moderate and extreme poverty, significant challenges remain, including limited access to social security and multidimensional poverty affecting nearly 30% of the population.
- What factors contributed to poverty reduction? Increased labor income due to wage hikes and governmental transfers, such as remittances and social programs, played crucial roles in poverty reduction.
- What are the future implications of current poverty reduction strategies? Continued reliance on transfers may lead to further cuts in essential areas like education and healthcare, hindering long-term economic growth potential.
- Why isn’t the Mexican government effectively promoting economic growth? Despite acknowledging growth as a policy objective, the government fails to establish an institutional framework that encourages private investment and technological advancement necessary for sustained economic growth.
