Mexico Environmental Sustainability Development Policy Loan

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The Environmental Sustainability Development Policy Loan (DPL) supports the Government of Mexico's medium-term, outcome-based program to promote sustainable development. The overarching objective of the DPL operation is to balance socio-economic development with environmental protection and improvement. The operation will complement actions supported by the recently approved climate change DPL and will further pursue the general objectives of a previous Environment DPL Program, by integrating environmental concerns in the sectoral policies and programs of key development sectors: tourism, energy, forestry, water, agriculture, and housing as prioritized by the government of Mexico (GOM). The original Environment DPL Program supported environmental mainstreaming in four of these sectors (tourism, energy, forestry, and water); the other two (agriculture and housing) have been included at the GOM's request. Macroeconomic risks are associated with effects on the Mexican economy of: (i) a sharper slowdown of the US (and global) economy, decelerating growth of non-oil exports and reducing the flow of workers' remittances, (ii) higher levels of international commodity and food prices leading to further pressures on domestic inflation, (iii) increased uncertainty with respect to credit conditions for the access of emerging markets to the international capital markets, and (iv) declining oil production. However, several factors are in place to reduce these risks, including: a healthy financial system that has begun to expand domestic credit as a share of GDP; more dynamism in exports to non-US destinations; favorable terms of trade with high oil prices; and the further consolidation of prudent macroeconomic policies in both the fiscal and monetary realms.