Document of The World Bank

FOR OFFICIAL USE ONLY

Report No. 81733-MX

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

PROGRAM DOCUMENT

FOR A PROPOSED LOAN

IN THE AMOUNT OF US$300,751,879.70

TO THE

UNITED MEXICAN STATES

FOR A

THIRD UPPER SECONDARY EDUCATION DEVELOPMENT POLICY LOAN

November 11, 2013

Human Development Department Mexico and Colombia Country Management Unit Latin America and the Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

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UNITED MEXICAN STATES - GOVERNMENT FISCAL YEAR January 1 – December 1

CURRENCY EQUIVALENTS (Exchange Rate Effective as of November 4, 2013)

Currency Unit: Mexican Peso

US$1.00 MX$13.01

WEIGHTS AND MEASURES Metric System

ABBREVIATIONS AND ACRONYMS

ANUIES National Association of Universities and Institutions of Higher Education (Asociación Nacional de Universidades e Instituciones de Educación Superior)

APL Adaptable Program Loan CBC Competency-Based Curriculum CFAA Country Financial Accountability Assessment CONAEDU National Council of Education Authorities (Consejo Nacional de

Autoridades Educativas) CONALEP National College of Professional Technical Education (Colegio

Nacional de Educación Profesional Técnica) CONAPO National Population Council (Consejo Nacional de Población) CONEVAL National Council for the Evaluation of Social Development Policy

(Consejo Nacional de la Evaluación de la Política de Desarrollo Social)

COPEEMS National Council for Assessment in Upper Secondary Education (Consejo para la Evaluación de la Educación Media Superior)

COSDAC Academic Development Unit (Coordinación Sectorial de Desarrollo Académico)

CPAR Country Procurement Assessment Review CPS Country Partnership Strategy DPL Development Policy Loan EMS Upper Secondary Education (Educación Media Superior) ENIGH National Household Survey of Income and Expenditures (Encuesta

Nacional de Ingresos y Gastos en los Hogares) ENLACE National Evaluation of Academic Achievement in Schools

(Evaluación Nacional del Logro Académico de Centros Escolares) EXCALE Education Quality and Achievement Test (Examen para la Calidad

y el Logro Educativo) GDP Gross Domestic Product GNP Gross National Product FCL Flexible Credit Line FRL Fiscal Responsibility Law FY Fiscal Year

ii

IBRD International Bank for Reconstruction and Development IDA International Development Association IDB Inter-American Development Bank IFC International Finance Corporation IMF International Monetary Fund INEE National Institute for the Evaluation of Education (Instituto

Nacional para la Evaluación de la Educación) INEGI National Institute of Statistics and Geography (Instituto Nacional

de Estadística y Geografía) JSAN Joint Staff Advisory Note LDP Letter of Development Policy MCC Common Curricular Framework (Marco Curricular Común) MDGs Millennium Development Goals MOF Ministry of Finance MTEF Medium-Term Expenditure Framework MUSE Mexico Upper Secondary Education NAFIN National Financial Development Bank (Nacional Financiera, SNC) OECD Organization for Economic Co-operation and Develpoment PFM Public Financial Management PISA Program for International Student Assessments PND National Development Program (Plan Nacional de Desarrollo) PROFORDEMS In-Service Teacher Capacity-Building Program for Upper

Secondary Education (Programa de Formación Docente de Educación Media Superior)

PROFORDIR School Director Capacity-Building Program for Upper Secondary Education (Programa de Formación de Directores para Educación Media Superior)

PROFORHCOM Skills-Based Human Resources Training Program (Programa de Formacion de Recursos Humanos Basada en Competencias)

PSBR Public Sector Borrowing Requirements RIEMS Integral Upper Secondary Education Reform (Reforma Integral de

la Educación Media Superior) SEDESOL Ministry of Social Development (Secretaría de Desarrollo Social) SEMS Under Secretariat of Upper Secondary Education (Sub-Secretaría

de Educación Media Superior) SEP Secretariat of Public Education (Secretaría de Educación Pública) SFP Ministry of Public Administration (Secretaría de la Función

Pública) SHCP Ministry of Finance and Public Credit (Secretaría de Hacienda y

Crédito Público) SICOP Budget and Accounting System (Sistema de Contabilidad y

Presupuesto) SIAT Early Warning System (Sistema de Alerta Temprana) SIGEMS System for Continuous Improvement of Upper Secondary

Education (Sistema de Mejora Contínua de la Gestión de la Educación Media Superior)

SINATA National Academic Tutoring System (Sistema Nacional de Tutoría Académica)

SNB National Upper Secondary Education System (Sistema Nacional de

iii

Bachillerato) TESOFE National Treasury (Tesorería de la Federación) UNAM National Autonomous University of Mexico (Universidad

Autónoma Nacional de México) UPEPE Planning and Evaluation Unit for Education Policy (Unidad de

Planeación y Evaluación de Políticas Educativas) UPN National Pedagogical University (Universidad Pedagógica

Nacional)

Vice President: Country Director: Sector Manager:

Task Team Leader:

Hasan A. Tuluy Gloria M. Grandolini Reema Nayar Peter A. Holland/Rafael E. de Hoyos

iv

UNITED MEXICAN STATES

THIRD UPPER SECONDARY EDUCATION DEVELOPMENT POLICY LOAN

TABLE OF CONTENTS LOAN AND PROGRAM SUMMARY ............................................................................. vi I. INTRODUCTION ........................................................................................................ 1 II. COUNTRY CONTEXT ............................................................................................... 4 III. THE GOVERNMENT’S PROGRAM AND PARTICIPATORY PROCESSES .. 13 IV. BANK SUPPORT TO THE GOVERNMENT’S PROGRAM ................................ 15

Link to CPS ................................................................................................... 15 Collaboration with the IMF and Other Donors ............................................. 15 Relationship to other Bank Operations .......................................................... 15 Lessons Learned ............................................................................................ 16 Analytical Underpinnings .............................................................................. 16

V. THE PROPOSED THIRD UPPER SECONDARY EDUCATION DEVELOPMENT POLICY LOAN ................................................................................... 18

Operation Description ................................................................................... 18 VI. OPERATION IMPLEMENTATION ........................................................................ 26

Poverty and Social Impacts ........................................................................... 26 Environmental Aspects .................................................................................. 28 Implementation, Monitoring and Evaluation ................................................ 29 Public Financial Management ....................................................................... 29 Disbursement and Auditing ........................................................................... 31 Risks and Risk Mitigation ............................................................................. 32

ANNEXES

ANNEX 1: LETTER OF DEVELOPMENT POLICY .................................................... 33 ANNEX 2: THIRD UPPER SECONDARY EDUCATION DPL POLICY AND RESULTS MATRIX ........................................................................................................... 46 ANNEX 3: IMF LETTER OF ASSESSMENT ................................................................. 56 ANNEX 4: SECTORAL BACKGROUND AND DESCRIPTION OF RIEMS ............ 61 ANNEX 5: COUNTRY AT A GLANCE ........................................................................... 65

TABLES

Table 1: Mexico Main Macroeconomic Indicators and Projections, 2010-2016 ........... 12 Table 2: Results of the RIEMS (as of November 2013) ................................................... 19 Table 3: Triggers and Prior Actions .................................................................................. 20 Table 4: Percent of students in the final year of EMS, by marginality level ................. 26 Table A2.1: Policy and Results Matrix ............................................................................. 46 Table A2.2: Indicators Measurement ............................................................................... 51

v

FIGURES

Figure 1: Stages of Engagement in Upper Secondary Education in Mexico: Skills for Shared Growth ...................................................................................................................... 3 Figure 2: Coverage in EMS (%) ......................................................................................... 14 Figure 3: Percent of Students Scoring “Good” or “Excellent” in ENLACE (Mathematics) by type of System Provider ....................................................................... 14 Figure 4: Percent of students with an unsatisfactory result, math, by marginality ...... 27 Figure 5: Percent of students in an unsatisfactory level of learning, Spanish, by marginality 28 Figure A4.1: Enrollment Rate by Grade, Basic and Upper Secondary Education ....... 62 Figure A4.2: Main elements of the Upper Secondary Reform ........................................ 64

ACKNOWLEDGEMENTS

This Third Upper Secondary Education Development Policy Loan was prepared by a team led by Peter A. Holland and Rafael de Hoyos, and comprising: Fabiola Altimari Montiel, Jozef Draaisma, Abril Ibarra, Xiomara A.Morel, Antonella Novali, Víctor Ordoñez, and Juan Carlos Serrano Machorro. The team is grateful for the close collaboration of the Mexican authorities throughout the preparation of this project. The team also acknowledges the support and guidance of Gloria M. Grandolini, Keith E. Hansen, Reema Nayar, and Wendy Cunningham. The peer reviewers were Cristian Aedo, Juan Manuel Moreno, and Halsey Rogers.

vi

LOAN AND PROGRAM SUMMARY

UNITED MEXICAN STATES

THIRD UPPER SECONDARY EDUCATION DEVELOPMENT POLICY LOAN

Borrower

The United Mexican States

Implementing Agency

Secretariat of Public Education (Secretaría de Educación Pública, SEP)

Financing Data

US$300,751,879.70 IBRD Flexible Loan denominated in US dollars, with a variable spread, commitment linked, bullet repayment on November 1, 2021, all conversion options (currency, interest rate, and Caps/Collars). The Front End Fee will be paid from the Loan proceeds (capitalized).

Operation Type

The third single-tranche operation in a Programmatic Development Policy Loan Series of Three.

Main Policy Areas • Improving Flexibility of Upper Secondary Education • Enhancing Quality of the National Upper Secondary

Education System • Reducing the Opportunity Cost of Upper Secondary

Education

Key Outcome Indicators

Improving flexibility of the national upper secondary education system:

(1) Index of entry into the Sistema Nacional de Bachillerato. Baseline (2007-08 school year): 0%. End of program (2014-15 school year): 20%

Enhancing quality of the national upper secondary education system:

(2) Average annual dropout rate in EMS. Baseline (2007-08 school year): 16.3%. End of program (2014-15 school year): 12%

(3) Percentage of students scoring “good” or “excellent” on the ENLACE assessment in Spanish [Baseline (2007-08 school year): 52.3%. End of program (2014-15 school year): 53%)] and Mathematics [Baseline (2007-08 school year) 15.6%. End of program (2014-15 school year): 37%]

(4) Percentage of students attending schools in very highly marginalized localities scoring “good” or “excellent” on the ENLACE assessment in Spanish [Baseline (2007-08 school year): 22.6%. End of Program (2014-15 school year): 31%] and Mathematics [Baseline (2007-08 school year): 6%. End of Program (2014-15 school year): 29%]

vii

Reducing the opportunity cost of the national upper secondary education system:

(5) Gross Upper Secondary Education enrollment (youth ages 15 to 17). Baseline (2007-08 school year): 58.6%. End of program (2014-15 school year): 68.7%

(6) Gross Upper Secondary Education enrollment for students from households in the first four deciles of income per capita. Baseline (2012-13 school year): 61.8%. End of program (2014-15 school year): 64%

Program Development Objective(s) and Contribution to CPS

The proposed Development Policy Loan (DPL) aims to support the Government in the implementation of Mexico’s Integral Upper Secondary Education Reform (Reforma Integral de la Educación Media Superior, RIEMS) to improve the internal efficiency and quality of EMS. The programmatic series would support actions in the following three areas addressing the key constraints of the EMS system: (i) improving flexibility of EMS, (ii) enhancing quality of EMS, and (iii) reducing the opportunity cost of EMS. The proposed DPL is an integral element of the Bank’s engagement on increasing social prosperity as outlined in the Country Partnership Strategy 2014-19.

Risks and Risk Mitigation

Risk Rating: Moderate. The operation is subject to three sets of risks: i) macroeconomic risks; ii) political, governance and stakeholder risks, and iii) sector policies and institutions risks. Macroeconomic Risks. An economic slowdown could make it difficult for the Mexican Government and state governments to finance the reform program and provide additional resources. However, as explained in a previous section, the fundamentals of the Mexican economy do not lead to foresee a slowdown in coming years 2014 to 2016.

Political, Governance, and Stakeholder Risks. With regards to political risk, the new Government has endorsed and even furthered the upper secondary education reform, and is unlikely to change course significantly, allowing the reform to consolidate gains and achieve its goals. However, the recent Constitutional Reform, which aims to improve quality of education, has caused a series of protests by the Coordinadora Nacional de Trabajadores de la Educación (CNTE), a Union which controls a small fraction of basic education teachers in Mexico (100 thousand affiliated out of a total 1.3 million teachers). While some concessions have been made to CNTE through these negotiations, it is not expected that the overall program proposed under this DPL would be affected by this situation since upper secondary education (Educación Media Superior, EMS) teachers are not affiliated to CNTE. The

viii

teachers unions that do include EMS teachers, such as the Sindicato Nacional de Trabajadores en Educación, have generally supported the RIEMS. Sector Policies and Institutions. With respect to the institutional risk, there is a risk that the complex nature of the upper secondary education system could impact effective and timely implementation of the RIEMS. This risk is mitigated by the creation of SEMS, which has strengthened the coordination of the system and has placed the responsibility of the reform under the purview of one entity.

Operation ID

P147244

1

IBRD PROGRAM DOCUMENT FOR A PROPOSED THIRD UPPER SECONDARY EDUCATION DEVELOPMENT POLICY

LOAN TO THE UNITED MEXICAN STATES

I. INTRODUCTION

1. Mexico is an upper middle income country with one of the highest per capita incomes in Latin America and the Caribbean. A member of the OECD and the G20, Mexico has maintained economic stability through times of recent crisis, and increased economic and social well-being over the last two decades. Still, Mexico faces challenges of poverty and inequality, due in part to stagnant productivity. As such, one of the pillars of the new Country Partnership Strategy between Mexico and the World Bank, Increasing Social Prosperity, aims to improve social prosperity and alleviate poverty through improving education outcomes, thereby enhancing labor market productivity, especially for the poorest. 2. Enhancing skills through improved education quality is a core part of increasing labor force productivity, long term economic growth, shared prosperity, and alleviating poverty. The Government has therefore prioritized education reform, the main aim of which is to improve the quality of education through professionalizing the system for hiring, evaluating, and promoting teachers, and the creation of an independent agency for evaluating the performance of students, teachers, and schools. The Bank’s education portfolio therefore supports these efforts to improve education quality at all levels, throughout the life cycle (see Figure 1). A critical tool in enhancing labor market productivity is through upper secondary education (Educación Media Superior, EMS), where the Bank has supported Mexico’s Secretariat of Public Education (Secretaría de Educación Pública, SEP) since 2008 through a tailored suite of services. The suite has consisted of financial (programmatic series of Development Policy Loans); knowledge and convening services, such as benchmarking the reform with other regional experiences; providing ‘just in time’ technical assistance and organizing workshops and south-south activities in priority topics for SEP such as teacher training and policies and strategies for reducing dropouts.

3. This proposed Upper Secondary Education Development Policy Loan would be the third loan to support the Government’s Integral Upper Secondary Education Reform (Reforma Integral de la Educación Media Superior, RIEMS). The reform, implemented by the Under Secretariat for Upper Secondary Education (Subsecretaría de Educación Media Superior, SEMS) of SEP, aims to improve the internal efficiency and quality of upper secondary education. The programmatic series supports actions in the following three areas addressing the key constraints of the EMS system: (i) improving flexibility of upper secondary education; (ii) enhancing quality of education; and (iii) reducing the opportunity cost of upper secondary education. The expected long-term outcomes of the reform include a reduction in dropout rates and an increase in learning outcomes, both effects linked to labor market productivity and long term economic growth. There is growing consensus that productivity and economic growth depend on the quantity and quality of a society’s human capital, which are necessary both to fuel innovation and to absorb and adapt technologies developed in other countries (Hanushek and Woessmann, 2008). Education yields a host of other development benefits as well, such as improving the health of learners and the education of their children (Lleras-Muney, 2005). As is made clear

2

by SEP’s overall policy goal of increasing gross enrollment rates in secondary education for the bottom forty percent (and reflected in this operation’s Policy and Results Matrix in Annex 1), these efforts are expected to disproportionately benefit the poorest 40 percent, and as such improve shared prosperity in Mexico. 4. RIEMS is a long-term process, built upon evidence and consensus. The first Development Policy Loan (DPL) supported the establishment of the National Upper Secondary Education System (Sistema Nacional de Bachillerato, SNB), including the development of minimum standards for students, a student assessment system, a teacher training program, and a school accreditation system, as well as the consolidation of the EMS scholarship program. The second Loan further strengthened RIEMS during an important political transition, focusing on the approval of technical programs, the operation of the student assessment and school accreditation systems, the governance of the teacher training program, and the expansion of services for youth at risk. To support this next phase of the Government’s reform, this proposed DPL would support policy actions around recognizing the equivalences necessary for transferring from school to school (irrespective of system), the establishment of an autonomous evaluation agency for the education system, a new policy for teacher training, innovations around supporting youth at risk of dropping out of school and enacting legislative changes to declare EMS mandatory. Annex 1 presents greater detail on the Government’s reform, in the form of its Letter of Development Policy. Annex 2 presents the Policy Matrix and the Results Framework for this DPL series. The proposed amount for the Third Upper Secondary Education Development Policy Loan is US$300,751,879.70.

3

Figure 1: Stages of Engagement in Upper Secondary Education in Mexico: Skills for Shared Growth

Foundations and early support

[1995–2003]

Broadening engagement

[2004–2009]

Expanding support

[2009-2013]

Consolidation

[2013-beyond]

Kn

owle

dge

S

ervi

ces

• Enhancing Productivity, Knowledge, and Competitiveness in Mexico (P084566, 2006)

• Secondary Education (P106567, 2008)

• PSIA: Support for Improving Equity in the Mexico Upper Secondary Education Reform (TF011538, 2014)

• Improving Skills for Enhanced Labor Market Productivity PKS (P128775, 2014)

Fin

anci

al S

ervi

ces

• Higher Education Financing Project (P049895, US$180.2 million, 1998)

• Knowledge and Innovation Project (P044531, US$300 million, 1998)

• Innovation for Competitiveness (P089865, US$250 million, 2005)

• Tertiary Education Student Assistance Project (P085593, US$171 million, 2005)

• Upper Secondary Education DPL (P112262, US$700 million, 2010)

• Upper Secondary Education DPL II (P126297, US$300,751,879.70, 2012)

• Upper Secondary Education DPL III (P147244, US$300,751,879.70, 2013)

Con

ven

ing

Ser

vice

s

• Dissemination of study: “Educación Superior y Desarrollo en Oaxaca” (IO 2074684) (February 2013)

• Presentation to SEMS: “La Educación Media Superior Después de 5 años de Reforma” (April 2013)

• Learning exchange on Upper Secondary Education during a visit of SEMS authorities to World Bank Headquarters (May 2013)

• Workshop on and presentation of a Policy Note offering a disaggregated analysis of dropout determinants in Mexico (July 2013)

FY14-19 CPS FY08-13 CPS FY03-07 CPS CAS 95-97, 97-99, 99-02, 02-05

4

II. COUNTRY CONTEXT

5. Mexico’s longer term economic growth has been disappointing and is driven by factor accumulation rather than increasing productivity. Over the past three decades, the Mexican economy managed to grow at an average annual rate of 2.4 percent, or less than 1 percent in GDP per capita terms. Mexico experienced a decline of economic growth as of the 1980s. Growth decompositions show that the moderate level of growth in Mexico can be largely attributed to factor accumulation (labor and capital) rather than to productivity growth. The sharp decline in productivity growth as of the eighties is generally attributed to the impact of macroeconomic instability. Progress over the past fifteen years in attaining macroeconomic stability as well as opening of the economy to trade and investment flows, has contributed to a steady, though only modest, increase in the levels of productivity. 6. The Government has embarked on an ambitious structural reform agenda to enhance productivity throughout the economy. Upon taking office, President Peña Nieto entered into an agreement with the two largest political opposition parties to advance on the legislative approval of a broad structural economic and political reform agenda. Within the framework of this Pact for Mexico, initiatives of labor, education, telecommunication and competition policy, financial sector, energy and fiscal reform have been discussed and presented to Congress. The adoption and adequate implementation of these reforms is expected to enhance potential output growth, initially through the additional investments and eventually through higher levels of productivity that these reforms are expected to unleash.

Recent Economic Developments

7. The Mexican economy rapidly recovered from the impact of the global financial crisis and experienced, more recently, a cyclical downturn. After a severe contraction following the global financial crisis, resurgence in demand for Mexican manufactured exports led to a sharp rebound in economic activity. The output gap, generated by the 2008-2009 contraction, was expected to be closed towards the end of 2012 after the economy experienced an average annual growth of 4.4 percent between 2010 and 2012. More recently, a global slowdown led to a significant deceleration of economic growth in Mexico, widening the output gap again. 8. The strong integration of Mexican industry into the supply of manufacturing industry in the United States implies a high correlation with U.S. industrial production. The recovery and strong expansion of manufactured exports between 2010 and 2012 managed to pull the Mexican economy out of its severe 2008-2009 contraction. More recently, weakening economic growth, industrial production and, in particular, a stagnation in overall import demand in the U.S. had an adverse impact on the growth of Mexican manufactured exports as of the second half of 2012. There does not appear to be a major competitiveness issue as Mexican exports continued to make modest market share gains. With an improvement of economic indicators in the U.S., the weak spot in economic activity experienced in 2013 is likely to be temporary and a rebound of exports and economic growth is expected towards the end of the year.

9. Fiscal consolidation and a slow start of public investment further deepened the deceleration of economic activity. Fiscal prudence continues to enjoy broad political support as a cornerstone of macroeconomic stability in Mexico with fiscal policy being

5

conducted within the framework of the Fiscal Responsibility Law (FRL). The FRL includes a balanced budget rule1 with an escape clause that allows for a budget deficit under extraordinary circumstances. The latter requires the outline of a plan to return to a balanced budget. Following the severe contraction in 2009, a budget deficit of 0.8 percent of GDP was allowed for 2010 with a three-year timeframe to get back to a balanced budget. In effect, fiscal support has been gradually withdrawn with budget deficits of 0.6 and 0.3 percent in 2011 and 2012, respectively, and an initial target for 2013 to return to a zero budget deficit. The impact of this consolidation effort on aggregate demand was intensified by a slow start of public investment at the beginning of the new administration, bringing public sector capital expenditures down by almost 7 percent in real terms during the first half of 2013. In the meantime, the Government revised fiscal consolidation plans as it intends to maintain the planned level of expenditure despite lower-than-expected revenue, thereby allowing for a budget deficit of 0.4 percent of GDP this year. 10. Economic growth continues to be far from sufficient to mitigate structural weaknesses on the Mexican labor market. The recovery in economic activity between 2010 and 2012 has generated new jobs and employment opportunities, though insufficient to regain levels of unemployment and other related indicators of labor market performance attained prior to the crisis. After peaking at 6.4 percent in September 2009, unemployment came down to 5.0 percent during 2012 and has stalled at that level throughout 2013, compared to an average of 3.7 percent observed between 2005 and 2007. These relatively low levels of unemployment are not necessarily an indication of a strong and vibrant labor market, as the latter is also characterized by persistent high levels of underemployment, informality and other precarious conditions of employment. If anything, the rate of informal employment increased on average from 61 percent prior to the crisis to 62.5 percent over the past two years. As the working age population continues to grow by 1.2 million people per year, the Mexican economy should be generating some 840 thousand jobs per year, assuming an average labor participation of 70 percent. Average annual formal and informal employment opportunities increased by 1.2 million jobs between 2010 and 2012, thereby allowing for some labor market recovery, though net job creation came to a temporary halt during the first half of 2013 as economic activity is expected towards the end of the year. 11. After more than a decade of rapid growth, outward migration and remittances have stagnated. Figures from the U.S. Current Population Survey show that the number of Mexican migrants in the U.S. stabilized at slightly fewer than 12 million people between 2007 and 2012, with no net increase in migrants, compared to an estimated average annual net migration of 500 thousand people in the preceding years. While tighter migration controls and the weak labor market in the U.S. may have played a role, other demographic and structural changes in the demand and supply of migrant labor are taking place as the number of migrants in the U.S. from other regions of the world (including Central and South America) did increase. The stabilization in the number of Mexican migrants provides a partial explanation of stagnation in the flow of workers’ remittances. Remittances dropped following the financial crisis and the collapse of the housing construction industry in the U.S. from a peak of US$26 billion in 2007 to US$21 billion in 2009 and have since been hovering in a range of US$21 to US$23 billion annually. Over the past year, remittances fell back to the

1 The budget balance targeted in the Fiscal Responsibility Law excludes investments in the oil sector as well as other off-budget expenditures. A broader deficit measure such as the Public Sector Borrowing Requirements (PSBR) does include these additional expenditures adding up to about 2.6 percent of GDP.

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lower end of this range, contributing thereby also to a weakening of private consumption and domestic demand. 12. Credit expansion to households and private sector firms at above economic growth rates has started to moderate. Finance to the non-financial private sector increased at an annual rate of 4.6 percent in real terms by mid-2013, higher than the 1.5 percent annual economic growth posted over the same period. Nevertheless, credit growth sharply moderated from a more rapid expansion observed in 2011 and the first half of 2012. Weakening economic growth and investment moderated demand for finance from firms, while increasing non-performing loans curbed growth in several segments of consumer credit. Growth of housing finance continues to trail behind as the demise of specialized housing non-bank financial intermediaries has been followed by financial problems at the largest housing construction companies. The commercial banks’ non-performing loan portfolio has shown a moderate deterioration though remains at a manageable level of 2.7 percent and is adequately provisioned for at 167 percent of non-performing loans. The Mexican banking system remains well-capitalized at an average capitalization ratio of 16.6 percent. 13. Moderation of inflation and inflation expectations allowed the monetary authorities to lower short-term interest rates in support of economic activity. Despite several supply shocks that temporarily raised headline inflation earlier this year, overall consumer price inflation and, in particular, core inflation moderately trended down to the medium-term inflation target of 3 percent. The success in moderating longer term inflation and inflation expectation as well as, more recently, the widening of the output gap led the monetary authorities to reduce the monetary policy interest rate to an all-time low of 3.5 percent, through reductions by 50 and 25 basis points each last March, September, and October, respectively. The recent policy move confirms the view of the monetary authorities that secondary round effects of supply shocks, as well as the pass-through of exchange rate depreciation on inflation and inflation expectations have greatly diminished.

14. Mexico experienced a surge in capital flows that has been largely reflected in an easing of financing conditions. Net private capital inflows totaled more than US$180 billion over the three year period between 2010 and 2012, equivalent to an annual average of about 6 percent of GDP. A major part of these flows, US$100 billion between 2010 and 2012, has been invested in domestic currency denominated government debt, creating a downward pressure on longer term interest rates, as well as an appreciation of the currency. Capital flows towards Mexico continued in 2013, as non-residents continued to invest some US$11 billion in Mexican Treasury bills and bonds during the first half of the year. The surge of capital flows over the past few years did not lead to a corresponding increase in the balance of payments current account deficit. While the economy’s external deficit did show a gradual increase to 1.2 percent of GDP by 2012 as a result of the economic recovery, significant capital inflows mainly led to a substantial accumulation of external assets by Mexican public and private economic agents, including through direct investment of Mexican companies abroad as well as the build-up of international reserves.

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Chart 1: Mexico Selected Macroeconomic Indicators Economic growth started to weaken as of mid-2012… …as the expansion of exports moderated,

followed by consumption and investment

Despite some recent supply shocks, inflation is maintained on target…

...without major concerns yet about a pass-through of exchange rate volatility.

The surge in capital inflows is reflected in the holdings of domestic public debt held by non-residents…

…with the recent reversal in capital flows leading to increased yields on longer term government bonds.

Source: INEGI and Banco de México

90

95

100

105

110

115

Jan200

8

July Jan200

9

July Jan201

0

July Jan201

1

July Jan201

2

July Jan201

3

July

Industry

Services

Total

Economic Activity Index, IGAE (SA, 2008=100)

80

90

100

110

120

I2008

III I2009

III I2010

III I2011

III I2012

III I2013

consumption

government

investment

exports

Aggregate demand, s.a. (2008-I = 100)

2

3

4

5

6

7

Jan2008

July Jan2009

July Jan2010

July Jan2011

July Jan2012

July Jan2013

July

Headline Inflation

Core Inflation

Consumer Price Inflation, annual %

11.0

11.5

12.0

12.5

13.0

13.5

14.0

14.5

15.0

2011

Jan

Mar

May Ju

lSe

pN

ov20

12 Ja

nM

arM

ay Jul

Sep

Nov

2013

Jan

Mar

May Ju

lSe

p

Peso-Dollar Exchange Rate

0

400

800

1200

1600

2000

Jan2008

July Jan2009

July Jan2010

July Jan2011

July Jan2012

July Jan2013

July

Treasury Bills

Bonds

Total

Domestic Public Debt held by non-resident, billion pesos

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

2012

Jan

Mar

May Ju

l

Sep

Nov

2013

Jan

Mar

May Ju

l

Sep

1-year 10-year 30-year

Government Bond Yield, annual %

8

Macroeconomic Outlook and Debt Sustainability 15. Economic growth will recover following strengthening of external demand and the implementation of monetary and fiscal policies in support of economic activity. Following the cyclical downturn created by softness in external demand and the subsequent weakening of domestic private consumption and investment demand, economic activity is expected to rebound led by strengthening of external demand as the global economy, and in particular the U.S., emerges from the soft patch observed in 2013. Domestic demand will be strengthened through supportive monetary and fiscal policies, as monetary authorities lowered short-term interest rates and the Government announced its plans for additional spending next year. Economic growth is projected at a level slightly above potential output growth over the next couple of years, as the output gap generated by the shallow recession in 2013 will be closed gradually. 16. The impact of structural reforms on potential output growth is expected over the medium term, as implementation and the response of economic agents will take time to materialize. During the first year of the current administration, major progress has been made on the enactment of legislative changes in the areas of labor market regulation, education, telecommunication, and competition policy, financial sector regulation, energy, and fiscal policy. Structural reforms in these areas are oriented to an improvement of the business climate, increased investment opportunities and competition in critical sectors of the economy, as well as enhanced quality and quantity of key inputs in production processes. Quantification of the impact (by when and how much) of these reforms on potential output growth is complicated as further details have yet to become clear from additional, secondary legislation and the actual application of the newly created legal framework by regulatory and implementing agencies. Additionally, the response of economic agents and the private sector to different incentives and the opening of investment opportunities will take time to materialize. As a result, the main economic indicators projected under a base scenario for 2014-2016 (see Table 1) do not yet incorporate a major impact of structural reforms adopted thus far, with an exception of tax reform and public expenditure plans that are expected to be implemented as of 2014. 17. The Government’s proposal for next year’s budget contains a revenue-enhancing tax reform. The case for tax reform in Mexico is often made in view of a relatively low tax collection limiting the ability of the state to provide an adequate level of welfare-enhancing public goods and services and redistributive social programs. With a tax-to-GDP ratio of 13.7 percent tax collection in Mexico is substantially below the level observed on average in Latin America or the OECD at 18.4 and 26.3 percent respectively.2 More importantly, Mexico faces significant medium-term fiscal pressures as net oil revenue (which makes up a third of public revenue) diminishes as a percent of GDP, due to falling levels of production and increasing costs of extraction, while rapid demographic and epidemiologic transitions are leading to rising public pension and healthcare spending needs. Even though the general features and statutory rates of the Mexican tax system are broadly in line with international practice, a large informal economy, as well as preferential regimes, exemptions, deductions, and multiple rates facilitates non-compliance and evasion, thereby lowering the productivity of most tax categories and overall tax collection. As part of the budget for next year, the Government proposes a tax reform that removes special and preferential treatment in the

2 OECD (2011), ratios include social security and local government tax collection.

9

corporate income tax, introduces a dividend and capital gains tax, limits deductions and raises the top rate in the personal income tax, eliminates exemptions in the value added tax regime, and introduces excise taxes on the carbon content of fossil fuels as well as on soft drinks (in an attempt to avert increasing problems of obesity). Additional tax revenue to be collected as a result of the reform is estimated at 1.4 percent of GDP in 2014, an amount that is projected to increase to 2.9 percent of GDP by 2018 due to some delayed effects and increased efficiency in tax collection. 18. Fiscal reform is partly motivated by broadening social protection with the introduction of a universal, non-contributory pension system and unemployment insurance. Non-contributory pension programs have been introduced by different levels of government in Mexico over the past decade in response to a growing number of elderly without any vested pension rights. The universal pension program proposed by the government will include the right to basic income support for the elderly in the Constitution and establishes the amount of the income support equal to the current national poverty line,3 to be adjusted annually with consumer price inflation. As the universal pension is about twice the amount under the current program of old-age income support, a 15-year transition period is envisaged. The Government is also proposing the introduction of unemployment insurance for formal sector workers, limited to 6 months and based on payments from individual accounts funded by social security contributions to be complemented by budgetary resources. The insurance should allow dismissed formal sector workers time for adequate job search in the formal sector and avoid labor market adjustments through the informal sector. 19. Next year’s budget includes countercyclical fiscal stimulus mitigating the impact on aggregate demand of the revenue-enhancing tax reform. In addition to a budget deficit of 0.4 percent of GDP to be incurred in 2013 (in terms of the FRL), the proposed budget for 2014 anticipates a budget deficit of 1.5 percent of GDP to provide for a stimulus of economic activity following the widening of the output gap during 2013. Fiscal stimulus is projected to be withdrawn gradually with a budget deficit of 1.0 and 0.5 percent of GDP in 2015 and 2016, respectively, and a return to a balanced budget by 2017. In terms of the broader Public Sector Borrowing Requirements (PSBR, see also footnote 1), the fiscal deficit increases to 4.1 percent of GDP in 2014 and gradually diminishes to 2.5 percent of GDP by 2017.

20. A slight increase in the public debt-to-GDP ratio, due to weak economic growth and additional deficit financing, does not call into question Mexico’s public debt sustainability in view of a relatively low prevailing debt-to-GDP ratio and a history of prudent fiscal policies and sound public debt and fiscal risk management. Net public debt is projected to increase to 41 percent of GDP by 2015 from 38 percent of GDP observed for 2012 before stabilizing or resuming a gradually downward path as of 2016. In addition to the conversion of some off-budget liabilities (such as from the 2007 public sector worker’s pension reform) or to exchange rate fluctuations, the debt-to-GDP ratio is mainly driven by the PSBR (as a share of GDP) in relation to economic growth. At times of weak economic growth and additional deficit financing, as in 2013 and 2014, when the PSBR outpaces economic growth, the debt-to-GDP ratio increases, while the opposite is true once the PSBR is lower than economic growth. The latter offers guidance for the average level of PSBR that can be incurred in the medium term to maintain a sustainable debt path, provided reasonably

3 Línea de Bienestar Mínimo issued by the National Council for the Evaluation of Social Development Policy (CONEVAL)

10

accurate estimates of trend growth. In an effort to strengthen countercyclical fiscal policies while maintaining fiscal prudence, modifications to the FRL are proposed that call for increased savings during good times and include a PSBR target in addition to the balanced budget rule. Furthermore, consistent public debt management succeeded to reduce the share of foreign currency denominated liabilities, from 40 to 25 percent over the past decade, and increase the maturity of domestic debt thereby greatly reducing refinancing, interest, and exchange rate risks. In this regard, the Government of Mexico (GoM) has a broader fiscal risk mitigation strategy, including an oil price stabilization fund leveraged by the purchase of oil price hedges and a natural disaster fund leveraged by the acquisition of insurance. 21. Exit from unprecedented monetary policies by advanced economies over the projection period may lead to reversals in gross capital flows giving rise to higher domestic interest rates and a weaker currency. Emerging markets, including Mexico, observed a surge in gross capital flows over the past few years, partly attributed to unprecedented monetary policies and low interest rates in major advanced economies. With growth in advanced economies accelerating, prospects of a gradual exit from monetary policy support are drawing closer, possibly leading to investors’ portfolio adjustments and a moderation or temporary reversal in gross capital flows to emerging markets. The surge in gross capital inflows to Mexico has been mainly absorbed by offsetting public and private capital outflows, rather than a significant deterioration of the current account. Such a financial adjustment tends to buffer the economic impact of volatile capital flows and moderates the required adjustment in real economic activity in case of a sudden capital flow reversal.4 Financial adjustment to capital flow volatility mainly operates through domestic interest rates and the exchange rate creating incentives for offsetting capital flows, diminishing variations in net capital flows. Expectations about an exit from unprecedented monetary policies by central banks from advanced economies already led to a sharp steepening of the yield curve and a significant depreciation of the currency over the past few months and financial markets, in the case of Mexico, were able to cope without major liquidity pressures or the need for public intervention. Further sharp swings in capital flows can be expected as investors react to withdrawal of monetary support in advanced economies over the next few years. 22. International reserves and an IMF Flexible Credit Line (FCL) enhance credibility of the policy framework, providing economic resilience to volatile capital flows. While the major part of stabilizing financial adjustment to a sudden shift in gross capital flows should come from the buffering behavior of private agents to changes in domestic interest rates and the exchange rate, international reserves and access to additional resources under the FCL provide the means for complementing public sector contribution to financial adjustment in case of extraordinary market conditions. International reserves have been accumulated over the past few years as all public sector foreign exchange transactions are channeled outside of the market through the central bank. The public sector has been a net recipient of foreign exchange, mainly due to net oil sector revenue, and international reserves at US$170 billion (August 2013) are up by US$80 billion compared to the end of 2009 (previous to the recent surge in capital flows) and by US$10 billion over the last twelve months. Mexico renewed its FCL with the IMF in November 2012 for a two-year period to an amount of approximately US$73 billion, providing additional assurance to investors on the adequacy of the economic policy framework.

4 IMF World Economic Outlook (October 2013)

11

23. In summary, Mexico has macroeconomic fundamentals and solid monetary and fiscal policy frameworks that provide for adequate buffers and policy room to respond to international financial volatility. Inflation-targeting monetary policy has allowed for reductions in short-term interest rates during 2013 to cope with output deceleration, even at a time of international financial market adjustments and higher longer term interest rates in anticipation of a shift in U.S. monetary policy. At 3.5 percent by October 2013, the monetary policy rate set by the Banco de México is at its lowest levels since early 2008, leaving monetary authorities room to maneuver. Accumulation of international reserves and the IMF's FCL, for an economy that has reduced the share of foreign debt, both public and private, indicates that the country has the ability to run exchange-rate smoothing policies. The former, together with the reduction in the exchange rate/inflation pass-through, indicates that the economy is less vulnerable to balance sheet or inflationary effects from rapid exchange rate adjustments. These fundamentals and policy framework lead to a stable forecast of inflation at 3.5 percent for the 2014-2016 period. The counter-cyclical fiscal stimulus leads to larger public sector borrowing requirements in 2014 of 4.1 percent, but a return to previous levels of 3.1 percent by 2016, and higher but manageable current account deficits of 1.5 and 1.7 percent in 2014 and 2016, respectively (see Table 1). 24. Notwithstanding significant challenges posed by the recent economic slowdown, the unprecedented increase and volatility in gross capital flows, and legislative approval and implementation of the structural reform program, Mexico’s macroeconomic policy framework is considered adequate for the purpose of the proposed Development Policy Loan.

12

Table 1: Mexico Main Macroeconomic Indicators and Projections, 2010-2016

Source: Bank staff based on INEGI, SHCP and Banco de México

Est. Projections Indicator 2010 2011 2012 2013 2014 2015 2016

National Accounts annual real percent change, unless noted GDP (year base 2008) 5.1 4.0 3.8 1.5 3.5 3.8 3.7 Consumption 4.6 4.0 3.1 2.0 3.3 3.7 3.7 Investment 0.3 8.1 5.9 0.6 5.9 5.7 5.6 Exports 21.6 7.5 4.6 2.6 4.8 5.1 4.7 Imports 19.6 7.1 4.1 3.1 5.8 6.0 5.9 External Accounts in US$ billions, unless noted Exports 298.5 349.4 370.7 380.4 402.4 430.5 456.3 Oil 41.7 56.4 52.9 49.7 46.5 49.8 51.2 Non-Oil 256.8 293.0 317.8 330.7 355.9 380.7 405.1 Imports 301.5 350.8 370.8 386.0 410.3 439.0 467.5 Worker Remittances 21.3 22.8 22.4 21.5 22.0 22.6 23.2 Current Account -3.2 -11.8 -14.2 -19.1 -21.5 -24.3 -25.2 Current Account (as % of GDP) -0.3 -1.0 -1.2 -1.5 -1.5 -1.7 -1.7 Direct Investment (liabilities) 21.9 21.6 13.4 29.1 22.3 25.0 29.0 Portfolio Investment (liabilities) 37.3 40.6 81.3 24.2 17.5 12.0 5.0 Gross Reserves (year-end) 113.6 142.5 163.6 174.2 185.8 192.5 198.0 Public Finance as a percentage of GDP, unless noted Total Revenue 22.4 22.7 22.7 21.6 21.8 21.8 22.6 Oil 7.4 7.6 7.6 7.3 7.0 6.9 7.6 Non-Oil 15.0 15.0 15.0 14.3 14.8 14.9 15.0 Tax 9.9 10.0 9.8 9.9 10.3 10.3 10.3 Non Tax 1.3 1.2 1.4 0.7 0.9 0.9 0.9 Public Enterprises 3.7 3.9 3.9 3.7 3.7 3.7 3.7 Total Expenditure 25.2 25.2 25.3 24.0 25.3 24.8 25.1 Current Expenditure 20.1 20.3 20.5 19.4 20.7 20.3 20.3 Capital Expenditure 5.1 4.9 4.8 4.6 4.6 4.5 4.8 PSBR 3.5 2.7 3.2 2.9 4.1 3.6 3.1 Net Public Sector Debt (SHRFSP) 36.8 37.9 38.0 39.0 40.5 41.0 40.9 Prices Inflation (e.o.p) % 4.4 3.8 3.6 3.6 3.5 3.5 3.5 Oil price (Mexican mix, US$ per barrel) 72.1 100.9 102.1 98.0 96.8 96.2 95.3 Exchange rate (peso/dollar, period average) 12.6 12.4 13.2 12.7 .. .. ..

13

III. THE GOVERNMENT’S PROGRAM AND PARTICIPATORY PROCESSES

25. The Peña Nieto Government has declared education reform as one of the administration’s main policy priorities, as evidenced by a new Constitutional amendment approved in the first few weeks of coming into office, as well as a political pact among the three major political parties in Mexico. The Constitutional change, approved in January of 2013 and signed into law by President Peña Nieto in February, launched what is likely to be the most important education reform in the country’s recent history. The main aim of the reform is to improve the quality of education through: i) a professional system for hiring, evaluating, and promoting teachers; and ii) the creation of an independent agency that will be responsible for overseeing all evaluation functions throughout the education system, including the performance of students, teachers, and schools. The political coalition and corresponding political will to improve the quality of education represents a singular opportunity for transforming the whole education system to better prepare students for their adult lives. 26. The reform has benefited from wide consultations. The Government has conducted extensive consultations with different stakeholders and the general public that show concern for and willingness to improve the quality of education in Mexico. As part of the strategy for developing the National Development Plan 2013-2018 (Plan Nacional de Desarrollo 2013-18), a consultation forum was launched from February to May 2013 in order to incorporate citizens’ proposals and views into the plan. The results of the consultation show that the improvement of the education system is a top priority for most of the 228,949 people consulted. In addition, better trained and evaluated teachers, principals, and school supervisors are perceived by citizens as the key for improving the quality of education in Mexico.5 Reforms in the Upper Secondary Education Sector 27. In addition to the reform to improve the quality of education of the whole system, Mexico has modified the Constitution and the General Law for Education to make EMS mandatory. These amendments represent the most influential policy regarding coverage of upper secondary education in Mexico. It also represents a major challenge for the GoM and its citizens since it requires the State to provide education services through upper secondary education (grades 10-12) to the entire population while compelling parents to ensure that minors attend school until they graduate from this level. Mexico has put in place an action plan to achieve the universalization of EMS by the 2021-22 school year. The main strategies envisaged to achieve this goal are to reduce dropouts and increase basic education (grades 1-9) completion rates. Granting the right to all Mexicans to receive free public education through grade 12 (about the age of 18) is a critical step to increase shared prosperity in Mexico since it has a major impact on the poor who have considerably fewer opportunities for accessing upper secondary education and thus for increasing their productivity and wages.

28. Mexico’s Integral Upper Secondary Education Reform (Reforma Integral de la Educación Media Superior, RIEMS), and the Bank’s accompanying Development Policy Loan series, predate the larger system-wide reforms recently announced. The upper secondary education system (Educación Media Superior, EMS) consists of two to four years of schooling (although most students follow a three year program covering grades 10-12),

55 Primer informe de gobierno de Enrique Peña Nieto (September 2013)

14

bridging basic education (up to grade 9) and higher education. Launched in 2007 by SEMS, the RIEMS seeks to bring coherence to a highly fragmented system suffering from low completion rates, poor quality, and in some cases questionable relevance to the labor market. (For a more complete description of RIEMS, see Annex 4).

29. After 5 years of implementation, the RIEMS seems to be bearing fruit, having greatly expanded coverage without lowering the quality of the education services. Increase in coverage at the EMS level has continued unabated (see Figure 2). At the same time, the quality of services, as measured by learning outcomes, has either been maintained (Spanish) or increased (Math) (see ENLACE scores in Table 2 in Section V). Moreover, providers that have adopted the reform more quickly and completely (that is, the federal providers) seem to be improving at a faster rate than those that have been slower to embark on the reform (e.g. state providers) (see Figure 3). Finally, the reform seems to have positive effects in the labor market. In 2008, on average, it took federal school graduates 13 months to get a stable job (a job with a duration of 3 or more months) versus 10 months for graduates from state schools. By 2012, EMS graduates were finding stable jobs faster, with the gap between federal/state schools virtually eliminated (6.8 months for federal versus 6.3 months for state schools).6

Figure 2: Coverage in EMS (%)

Source: SEP, Sistema para el Análisis de la Estadística Educativa (SISTESEP)

Figure 3: Percent of Students Scoring “Good” or “Excellent” in ENLACE (Mathematics) by type of System Provider

Source: SEP, ENLACE EMS

6 ENILEMS (2008) and (2010)

60.9 62.3

64.4

66.7

69.3

56.0

58.0

60.0

62.0

64.0

66.0

68.0

70.0

2007-2008 2008-2009 2009-2010 2010-2011 2011-2012

15.63

30.81

15.3

35.05

11.6

26.64

0

10

20

30

40

2008 2009 2010 2011 2012

15

IV. BANK SUPPORT TO THE GOVERNMENT’S PROGRAM

Link to CPS 30. This operation fits under the “Increasing Social Prosperity” pillar of Mexico’s Country Program Strategy (CPS) with the World Bank. The pillar aims to improve social prosperity and alleviate poverty through enhancing labor market productivity and improving education outcomes, especially for the poorest. This operation is expected to contribute to more people completing upper secondary and with the right skills, thereby increasing productivity and boosting shared prosperity. Moreover, both have a strong focus on equity: the pillar aims to reduce poverty and increase prosperity through increasing wages of those at the bottom of the income distribution. To do so, this operation focuses on improving the skills and preparedness for young Mexicans entering the labor market, with activities aimed at reducing the dropout rate of those in the bottom quintile. 31. The tailored suite of Bank services in the education sector is also well aligned to the CPS. This operation, the third in a programmatic series, is part of a larger package of services which include: i) knowledge services, especially with regards to policies for reducing dropouts; ii) convening services, featuring south-south activities with other recent experiences of secondary education reform (Brazil, Chile); and iii) financial services, including this and previous Development Policy Loans. Collaboration with the IMF and Other Donors

32. World Bank and IMF staff meet on a regular basis to exchange views on the macroeconomic situation and prospects for Mexico. These consultations occur at least quarterly and involve exchange of documents and recent reports conducted by the respective teams. Work has focused on short term economic issues and on structural issues, such as the financial sector, public finance, and Mexico’s productivity.

33. The Bank has also collaborated with the Inter-American Development Bank (IDB) during Loan preparation. The IDB has actively supported the EMS reform. On the technical side, the Bank and IDB jointly provided support to SEMS to design and implement its evaluation program. Likewise, the IDB has provided support through its Skills-Based Human Resources Training Program (Programa de Formación de Recursos Humanos en Competencias, PROFORHCOM), which aims to improve the links between EMS and the productive sector. Relationship to other Bank Operations

34. The Bank supports the education sector in Mexico through a tailored suite of services, featuring knowledge, convening, and financial services. The Bank is active in all major areas of the education sector, selecting key policy areas on which to focus, as agreed with the Government, within each level of education. The program begins at the Early Childhood Development and preschool levels, where the Bank has worked with the National Council for Education Development (Consejo Nacional de Fomento Educativo, CONAFE) on the Compensatory Education Project (P101369, Loan 7859-MX, US$100 million) whose goal is to improve education quality, efficiency and learning of children in the poorest municipalities. At the basic education level, Bank support has focused on the school

16

autonomy agenda, including related national policy, through the ongoing School Based Management Project (APL II) (P115347, Loan 7948-MX, US$220 million), the second operation in a series of three projects. The Project aims at improving the quality of education by promoting increased school autonomy and social participation. At the higher education level, the recently closed (APL I) Tertiary Education Student Assistance Project (P085593, Loans 7346-MX and 7349-MX, US$171 million) sought to foster the sustainable and equitable expansion of tertiary education through providing financial assistance to disadvantaged students. Lessons Learned

35. The design of this proposed operation takes into account the lessons learned from the two previous operations, as well as secondary education reform in Latin America and beyond. With regards to education reform, the lessons include the complexity around reform compounded by the diversity of stakeholders, the many inter-dependent elements, and associated risks. Reforms in federal education systems are that much more complex, given the decentralized and diverse actors in the system. The inter-dependent nature of many elements of reform – from curricula to teachers, evaluation, school accreditation and so on – and the need for institutional capacity to carry out the reform requires special attention to the sequencing of policy changes. Given these risks and potential high costs to reform, policymakers must carefully calculate the benefits to transforming education to ensure that they outweigh the costs. There is therefore, no single path to success, and each reform requires its own tailored timetable. Each country must develop a strategy based on an understanding of the sector’s supply and demand constraints and its institutional structure, as well as the underlying economic and political conditions.

36. Among the lessons that have been learned from this DPL series are the importance of a well-defined program/partner, institutional relationship, and technical cooperation beyond the DPL. Development policy loans should therefore focus sharply on those elements of reform programs that will benefit most from Bank engagement. Similarly, while coordination across actors is important in terms of a panoramic view of the sector and possible synergies, it is crucial to have one clear partner responsible for the reform actions. Despite relative stability throughout Mexico’s public sector, changes in personnel can happen at various levels of government during political transitions. Although institutions and programs often remain, it is important to maintain lines of communication with the institution that go beyond personal relationships. Mexico has a strong policy research capacity and SEMS has been proactive in developing a robust program and evaluation. As such, the Bank should be selective in choosing in which areas to support the Government, responding to client demand. This third operation has been accompanied by technical work on the issues of reducing dropouts, improving teacher training, and making better use of student evaluation data (among other topics). Analytical Underpinnings 37. The reform has benefited from strong analytics since its inception. In 2007, the Government undertook a detailed diagnostic of the challenges facing EMS. After designing the reform based on the best national and international evidence available at the time, SEMS launched an ambitious research agenda to track the implementation of the RIEMS and better understand the performance of the whole upper secondary education system by filling the

17

knowledge gaps in terms of learning outcomes (through the implementation and analysis of EXCALE and ENLACE results), determinants of the high dropout rate (through the ENADEMS survey), and equity and relevance challenges (the impact evaluation for scholarships). That research agenda was most recently updated by the new SEMS team at the beginning of this administration. 38. Correspondingly, the DPL series built upon strong analytical work and an extended policy dialogue. The Mexican authorities and the Bank have been engaged in a fruitful long-term dialogue on improving EMS since the reform’s inception. This includes organizing international conferences, seminars, and workshops, preparation of analytical research, and high level policy notes and briefings. This dialogue has been supported by the Mexico Secondary Education AAA (P106567), the Poverty and Social Impact Analysis Trust Fund Support for Improving Equity in Mexico Upper Secondary Education Reform (TF011538) and an extended series of technical cooperation activities carried out since 2009 and more recently supported by the Improving Skills for Enhanced Labor Market Productivity Programmatic Knowledge Services (now Programmatic Approach, P128775, 2012). Recent technical cooperation has mainly focused on topics related to benchmarking the RIEMS, increasing coverage, quality and relevance of EMS, and reducing dropouts, and has informed the design of the proposed operation (See Box 1 Agenda for Technical Cooperation).

Box 1. Agenda for Technical Cooperation Reducing drop-outs. The new SEMS team’s overarching priority is reducing dropouts (by 50% over the next 6 years). To this effect, the Bank has supported SEMS with analytical work including sharing best practices and further analyzing recent data in school dropouts. SEMS and the Bank organized a workshop in June 2013 to share findings with state authorities. Following the workshop’s recommendations, SEMS launched the Movimiento Contra el Abandono, providing school leaders with a toolkit of policies to reduce dropouts. Relevance and labor market. The Bank has been supporting SEMS in identifying options for creating a national tracking system for EMS graduates, to better inform how EMS is responding to labor market demand. In addition, the Bank team has been engaged in a technical dialogue to improve the cost effectiveness and relevance of Technical Vocational Education and Training, through a planned process evaluation of scholarships aimed at reducing dropouts. Teacher training. The Bank has also engaged with SEMS on the topic of teacher training, including a workshop in June 2013 to share international best practices and strategies to improve teachers’ practices in the EMS classroom. Based on the outputs of the workshop, the Bank prepared a note to help guide the restructuring of the national teacher training program (PROFORDEMS), whose impact evaluation the Bank will support. Benchmarking the EMS reform. To provide SEMS with some comparators and help establish expectations for how far advanced the reform should be at the five year mark, the Bank undertook a rapid benchmarking exercise of other similar reforms, showing that RIEMS is still relatively young, and that such structural changes take time. This exercise also consisted of a rapid assessment of progress against objectives and results. Evaluation. The Mexican Government is a pioneer in the use of high quality evaluations to inform policy decisions, especially in the social sectors. The Bank is currently supporting an evaluation program that includes evaluating teacher training, the effectiveness of policies for reducing dropouts, an impact evaluation on scholarships and another of students’ perceptions of returns to EMS.

Assessments and use of assessment data. With the reform, the education system started gathering data on EMS in a systematic fashion. Most recently, the Bank has started a technical dialogue to explore ways in which SEMS can build the capacity at the state level for providing schools with the technical support needed to make better use of assessment data, in an effort to better diagnose and respond to the specific challenges to achieving better learning outcomes. In addition, SEMS and the Bank are exploring ways in which the ENLACE databases can be further exploited to inform policy formulation in education.

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V. THE PROPOSED THIRD UPPER SECONDARY EDUCATION DEVELOPMENT POLICY LOAN

Operation Description 39. The proposed Development Policy Loan is the third in a programmatic series that supports the Government in the implementation of RIEMS to improve the internal efficiency and quality of EMS. The programmatic series supports actions in the following three areas addressing the key constraints of EMS: (i) improving flexibility of upper secondary education; (ii) enhancing quality of the national upper secondary education system; and (iii) reducing the opportunity cost of upper secondary education. Actions supported by the DPL series will contribute to the internal efficiency of upper secondary education and lead to a reduction in the dropout rate. Graduates will be better prepared with the necessary skills for a modern workforce. 40. The first DPL supported the establishment of the National Upper Secondary Education System (SNB). Under the DPL, the World Bank supported the legal steps to formalize the reform and the definition of the first set of minimum standards needed for upper secondary graduates. The DPL also supported actions to establish a national evaluation system and a school accreditation system for EMS, as well as the establishment of the teacher training program (PROFORDEMS) and the consolidation of the EMS scholarship program.

41. The second DPL helped maintain the continuity of the reform and strengthening key institutions. With regards to the SNB, DPL II supported the completion of the Competency-Based Curriculum. In terms of quality, it furthered the EMS evaluation agenda, and endorsed actions that consolidated the institutional governance over the flagship teacher training program PROFORDEMS and that fortified the quality assurance system through COPEEMS. With regards to the opportunity cost of EMS, it supported actions related to targeted approaches to attracting and keeping poor students in school, such as the scholarship program. The second operation of the DPL was accompanied by technical assistance on a wide variety of issues and will end in November 2013.

42. With this third DPL, the series addresses the most important reform to date for EMS, together with remaining critical actions to help consolidate the reform. Most important among the policy actions supported under this operation is the constitutional amendment rendering upper secondary education mandatory. The enactment of the associated law represents the most influential policy action for all those reaching the age for upper secondary education (15 to 18 years old). The prior actions flow directly from the indicative triggers and have been selected to reflect high priority policy and institutional measures central to RIEMS. Table 3 presents the indicative triggers and prior actions for DPL III. 43. Still, the reform is young and will require more time to achieve the DPL series results indicators. As per Table 2, all results indicators are on-track, with the exception of the percentage of students scoring “good” or “excellent” on ENLACE for Spanish. Among the elements contributing to the results are a number of important gains across reform areas. There are 668 schools evaluated for accreditation, of which 658 have gained entrance to the National Upper Secondary Education System (Sistema Nacional de Bachillerato). The Government continues with the timely publication of student assessment results, including EXCALE, a detailed exam applied to representative samples of the school population.

19

Agreements between the federal and state authorities have also been reached to implement programs combating student dropouts (previously clustered under SIGUELE). Progress has been slower with respect to enrolling, graduating and certifying teachers in the national teacher training program (Programa de Formación Docente de Educación Media Superior, PROFORDEMS) and in the adoption of the complete competency-based curriculum (CBC) by all the systems of the four service providers. With regards to PROFORDEMS, the new administration slowed the expansion of the program while it updated its design and relevance. For the CBC, a considerable number of systems within the four types of providers accounting for 3,497,146 students (equivalent to 80.7 percent of the total EMS population) have adopted the CBC. However, since this aspect of the reform is voluntary, it will be some time before all systems have adopted the new curriculum. Yet, it is important to mention that most state and autonomous systems (apart from the autonomous system operated by Universidad Nacional Autónoma de México, UNAM7) have joined the reform and actively participate in the reform’s activities.

Table 2: Results of the RIEMS (as of November 2013)8

Program Outcome Baseline (2008)

Current (2012-13 school

year)

End of DPL III (June 2015)

1. Improving Flexibility of Upper Secondary Education

Index of entry into the Sistema Nacional de Bachillerato

0% 12.73% 20.0%

2. Enhancing Quality of Upper Secondary Education

Average annual dropout rate in EMS 16.3% 14.5% 12.0%

Percentage of students scoring “good” or “excellent” on the ENLACE assessment

Spanish: 52.3% 50.0% 53.0%

Math: 15.6% 36.3% 37.0%

Percentage of students attending schools in very highly marginalized localities scoring “good” or “excellent” on the ENLACE assessment

Spanish: 22.6% 30.5% 31.0%

Math: 6.0% 27.0% 29.0%

3. Reducing Opportunity Cost of Upper Secondary Education

Gross Upper Secondary Education enrollment (youth ages 15 to 17)

58.6% 65.9% 68.7%

Gross Upper Secondary Education enrollment for students from households in the first four deciles of income per capita

61.8% 64%

7 UNAM is considered to have the highest quality of any public EMS system. Already having a well-recognized system, UNAM sees few benefits on joining the reform for the institution or its students. 8 Years represent end of school year. For example, 2008 refers to school year 2007-2008, ending in June.

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Table 3: Triggers and Prior Actions

Indicative Triggers DPL III prior actions Comments

1. Improving Flexibility of Upper Secondary Education

SEP issues rules (through acuerdo secretarial or other instrument) for the Certificado Nacional de Bachillerato.

Dropped. The new Government has delayed the introduction of the Certificado Nacional de Bachillerato, instead using accreditation of schools as the basis for establishing coherence system-wide.

The Government has recognized equivalences of subjects across schools to facilitate the transfer of students between systems, as evidenced by: (i) the Government’s Decree (which modified the General Education Law) duly published in the Official Gazette on June 10, 2013; (ii) the Government’s education reform which is set forth in the Government’s Decree (which modified the General Education Law) duly published in the Official Gazette on September 11, 2013; and (iii) Resolution No. XVIII, dated June 14, 2013 issued by CONAEDU.

New. This prior action is the last element required to render the EMS system more flexible for students. Having developed the Competency-Based Curriculum, the pending element to facilitate transfers of students between systems is the agreement among state and federal education authorities, as represented by CONAEDU, on the recognition of equivalences, through the student registry.

2. Enhancing Quality of the National Upper Secondary Education System

SEP and INEE entered into partnership agreements with some states to disseminate results from the National Evaluation System.

The Government has: (i) established INEE's mandate, functions and responsibilities and internal organization; and (ii) granted INEE full legal, technical and financial autonomy and new responsibilities, including those related to the evaluation of Upper Secondary Education, as evidenced by the Government’s law (Ley del Instituto Nacional para la Evaluación de la Educación) duly published in the Official Gazette on September 11, 2013.

Reformulated to reflect new law. The prior action is stronger than the trigger. The trigger focused on dissemination of evaluation results, while the prior action grants INEE full autonomy (including budgetary) from SEP to carry out all evaluation functions, hereby removing any possible conflicts of interest. This includes using evaluation results for informing education policy, thus creating a link between the Institute’s new legal attributions and the quality of education services.

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Indicative Triggers DPL III prior actions Comments

SEP has developed a policy for training part-time public teachers.

Dropped. The new law establishing the professionalization of the teaching career (Ley del Servicio Profesional Docente) requires that all teachers (including part-time teachers) participate in professional development and training activities. The policy for training part-time teachers at the upper secondary level is still being developed.

SEP has developed a mechanism to officially recognize alternative teacher training programs.

The Government has issued regulations to officially recognize alternative teacher training programs under the National Upper Secondary Education System as evidenced by Acuerdo No. 15 issued by the Comité Directivo del Sistema Nacional del Bachillerato Sectorial, published in COPEEMS’ website and dated June 13, 2013.

Reformulated to strengthen wording. This prior action builds on the indicative trigger of DPL II.

3. Reducing Opportunity Cost of Upper Secondary Education

SEP carries out an evaluation of SIGUELE.

The Government, through SEP, has introduced a new modality to award scholarships under SEP scholarship program in order to improve the targeting of students at risk of dropping out, as evidenced by SEP’s Acuerdo No. 690, published in the Official Gazette on August 19, 2013.

Reformulated to focus on government priority. Thus far, the new Government has focused on improving the largest element of SIGUELE, the scholarship program, using recent evaluations to inform the new directions of the program.

Mexico has developed a policy framework that assures universal EMS.

The Government has made Upper Secondary Education compulsory, as evidenced by the Government’s Decree (which modified the General Education Law) published in the Official Gazette on June 10, 2013.

Reformulated to strengthen wording. This prior action flows directly from the indicative trigger.

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POLICY AREA I: IMPROVING FLEXIBILITY OF UPPER SECONDARY EDUCATION (EMS)

44. This policy area supports initiatives under RIEMS establishing the National Upper Secondary Education System (Sistema Nacional de Bachillerato, SNB), and actions that establish equivalences throughout EMS. In particular, the actions here will facilitate the transfer of students among and across the different systems, such that students can adjust their schooling pathways without starting over, thereby rendering the system more efficient.

Prior Action 1: The Government has recognized equivalences of subjects across schools to facilitate the transfer of students between systems.

45. The DPL series has supported various actions for establishing and strengthening the institutional basis of the SNB. Early stages of the reform established a set of minimum competencies that students should achieve by the end of EMS. Specifically, prior actions supported the creation of the Competency-Based Curriculum (CBC) for the SNB, including generic, subject area, and professional competencies. As a result, the Common Framework of the CBC has been adopted in all federal systems, 7 state systems, 16 autonomous university systems, and three private systems by September 2013. This represents around 81 percent of the total enrollment in EMS.9 With the establishment of the CBC, marking a system-wide definition of desired competencies (identified and agreed to with, among other actors, tertiary institutions and the private sector), and with the majority of the systems having introduced the CBC, the pending policy action required to facilitate the transfer of students across schools and systems is an agreement on how to recognize equivalences. Integral to this agreement is the national registry that permits the documentation of such equivalences and the verification required for communicating between schools and systems, which will also resolve data issues around tracking the indicator for mobility between schools/systems.10

46. The indicative trigger for this area focused on issuing rules for the Certificado Nacional de Bachillerato, a national graduate certificate, as an instrument for improving flexibility of EMS. This has not been incorporated as a prior action under DPL III. Conceptually, the national graduate certificate was supposed to provide a seal of quality for a select few schools passing quality standards for admittance to the SNB. However, as part of the previous changes to the SNB entry criteria, schools can now enter the system with varying levels of quality (from level 4 with minimum quality criteria to level 1 with extremely high quality criteria), thereby affecting the quality seal function of the proposed certificate. While the new authorities are reconsidering a re-designed national certificate that could serve as a quality assurance mechanism, perhaps only for schools of certain quality levels, the priority now is to bolster the accreditation levels under the SNB and support schools within the SNB to move from lower to higher quality levels as the seal of quality, to further incentivize schools to adopt the reform.

47. Expected results for Policy Area I of the reform. The prior actions within this policy area have supported the introduction of the CBC through EMS as a first step for improving the flexibility of upper secondary education in Mexico and will contribute to

9 Informe de Actividades del COPEEMS, September 2013. 10 So far all federal systems (10.4 percent of schools) accept transfer students from all system providers, along with schools in the SNB.

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ensure that the service providers (federal, state, autonomous university, and private) that are part of the SNB are registering students in the national registry, and using the registry to verify equivalences. Overall, the greater flexibility of the system and the appropriate implementation of the competency based curriculum are expected to increase the number of schools within the SNB that accept student transfers and validate equivalences. More schools accepting student transfers will reduce dropouts, since students transferring will not need to restart from the beginning of the EMS cycle in their new system, and will increase efficiency, since students will be able to complete their degrees in fewer years. POLICY AREA II: ENHANCING QUALITY OF THE NATIONAL UPPER SECONDARY EDUCATION

SYSTEM

48. This policy area focuses on actions to improve the quality of EMS so that students complete upper secondary education with the skills to continue on to higher education and for eventual labor market success. Specifically, it supports the New Tools and Institutions (student assessments, teacher training) and Certification (school accreditation) part of RIEMS. As a result of the actions supported under this policy area, EMS graduates will improve their skills (as measured by standardized test scores) and wages and employability will increase among those entering the labor market.

Prior Action 2: The Government has: (i) established INEE's mandate, functions and responsibilities and internal organization; and (ii) granted INEE full legal, technical and financial autonomy and new responsibilities, including those related to the evaluation of Upper Secondary Education.

49. The DPL series supported the National Evaluation System for Upper Secondary Education for students in the last grade of Upper Secondary Education. DPL actions also supported the dissemination of EXCALE (a sample test representative at the national level) results. These actions have allowed improvements in the quality of instruction, through more precise diagnostics of the elements in the curriculum with which students were struggling. DPL III supports the recently approved Constitutional Reform granting INEE full autonomy and defining the Institute as the entity responsible for the design and implementation of the whole Mexican Education Evaluation System. Actions under the new administration to grant INEE full autonomy, and the corresponding revamping of the education evaluation agenda, represent a crucial change to the education evaluation agenda and will make the system even more robust. Before the reform, all evaluation activities were under the responsibility of SEP (via the Under Secretariat of Planning and Evaluation, SPEPE), creating a potential conflict of interest and reducing the results’ credibility. Part of INEE’s truncated evaluation capacity was explained by a limited budget that depended on decisions made within the Secretariat of Education (SEP). The establishment of INEE as a fully autonomous entity with its own budget and a governing council formed by 5 experts appointed by the President and ratified by the Congress, removes any doubts of impartiality of results, and gives more weight to system evaluation. INEE’s new mandate is to develop an education evaluation system which will include: a) Students’ assessments; b) Evaluation of all the steps and requirements established by the Servicio Profesional Docente (including selection criteria, promotions, training, monetary and non-monetary rewards, and termination); c) Evaluation of school principals and supervisors; and d) Selecting and training decentralized evaluation institutions. Additionally, the reform makes INEE responsible for ensuring that the evaluation results are

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used to inform and, if needed, redesign education policy thus creating a link between the Institute’s new legal attributions and the quality of education services. Prior Action 3: The Government has issued regulations to officially recognize alternative teacher training programs under the National Upper Secondary Education System.

50. The DPL series supports the expansion of teacher training, including the National Upper Secondary Education Teacher Training Program PROFORDEMS. Out of a total of 180,852 teachers, the program has enrolled 112,334, about half of whom (75,343) have graduated. The main weaknesses of the program were: insufficient financing and implementation capacity, including a diffusion of responsibility in monitoring, evaluating and following-up on the implementation of the program; and a series of logistical challenges caused by the rapid expansion of the program prior to its operational maturity. Transferring the coordination and supervision functions of the program to SEMS’ Academic Development Unit (Coordinación Sectorial de Desarrollo Académico, COSDAC) has improved the coordination of the teacher training program. More recently, the content and delivery of the program are being revised to focus more sharply on those elements linked to improving teacher practices in the classroom. However, the program continues to face constraints in meeting the high demand for teacher training, in part because of logistical issues such as ensuring that teachers are assigned to the closest training locations, and acquiring the necessary equipment to allow for virtual options. The policies supported by the prior action officially recognize other existing training programs (that meet certain quality standards) as acceptable alternatives to PROFORDEMS under the Sistema Nacional de Bachillerato. This will help bring to scale the coverage of in-service training, while diversifying teacher training options to better fit the specific needs of teachers and their students. In addition, following the recently approved legislation regarding the Servicio Profesional Docente, and as per the indicative trigger for this proposed operation, SEP is developing a policy that will bring professional development and training activities to all teachers, including part-time teachers. However, since the legislation has only recently been passed, the new policy has yet to be developed and implemented. The trigger has therefore been dropped, though the policy is expected to be in place at the time of evaluation of this series.

51. Expected results for Policy Area II of the reform. The policies related to evaluation, school accreditation and teacher training under this policy area are expected to contribute to improve the quality of education as measured by standardized tests (there is strong evidence linking teacher quality, as well as robust accreditation and assessment systems, to learning outcomes). Students in very highly marginalized localities that usually have lower quality teachers than schools in less marginalized communities are expected to benefit the most. In particular, evaluation actions are helping teachers better identify problem areas in student learning. The school accreditation process is working to recognize schools of higher levels of quality. Policy areas related to training are helping teachers to teach the broader skill set laid out in the CBC, which includes higher order cognitive skills, socio-emotional, and strengthening basic cognitive functions. In addition, it is expected that by improving the quality of EMS, dropouts will decrease, rendering the system more efficient (a recent national survey on dropout rates showed that one of the main reasons for students to drop out is the lack of quality and relevance of the education they receive).11

11 National Survey on Drop-Out in Upper Secondary Education (Encuesta Nacional de Deserción en la Educación Media Superior), 2012.

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POLICY AREA III: REDUCING THE OPPORTUNITY COST OF UPPER SECONDARY EDUCATION

52. The Federal Government is committed to promoting equality of opportunities among all Mexicans by designing policies and approving the necessary legal amendments to increase access to EMS among the poor and vulnerable youth. Analysis shows that poor and vulnerable students (especially males) drop out from upper secondary education due to a host of economic, social, and psychological issues. Therefore SEP, through RIEMS, continues to expand its scholarship program and recently improved its design to reach vulnerable students that belong to households with incomes not necessarily below the poverty line. The importance of EMS in Mexico’s long term development agenda and the commitment of the Mexican Government in promoting equal opportunities resulted in a Constitutional amendment that made EMS mandatory.

Prior Action 4: The Government, through SEP, has introduced a new modality to award scholarships under SEP scholarship program in order to improve the targeting of students at risk of dropping out.

53. The DPL series has supported the consolidation of the scholarship program, as well as the expansion of the program. Specifically, the series has attempted to foster a sharp focus for the scholarship and other support programs on the poorest. As a result of an expansion in the budget, the number of scholarships in EMS increased from 280,000 in 2007-08 (the first year of the program) to more than 722,000 in 2013-14. In order to inform the expansion of the program, the indicative triggers under both previous DPLs have underlined the importance of program evaluation, with the view of improving the targeting of the scholarships. Based on preliminary findings of an impact evaluation, the reform ensures that the scholarships are delivered promptly to students who are most at risk of dropping out of school by introducing a new modality at the school level, whereby each school committee is responsible for administering a certain number of scholarships (subject to budget constraints, among other criteria). The committees, comprised of school directors and teachers, identify those students most at-risk of dropping out, and will likely bring many other benefits linked to having school-level authorities be aware of which students are most in need of extra attention.

Prior Action 5: The Government has made Upper Secondary Education compulsory.

54. This prior action reflects one of the most relevant policies regarding EMS in Mexico. By making EMS compulsory, the new law requires states and other education authorities to provide education services through the end of EMS to all, while compelling parents to ensure that minors attend school until they graduate from EMS. Making EMS mandatory has a major impact on the poor since they are the ones most prone to dropping out of school, and stresses the importance that the Mexican Government has given to EMS and its commitment to the most vulnerable. Mexico should spend around 0.18 more percentage points of its GDP in the next 6 years to make significant progress towards the achievement of universal upper secondary education.12

12 Mexico spends around 0.48 percent of its GDP in EMS. In a scenario of slow coverage expansion (with an enrollment of 678,000 more students), driven by a modest reduction in dropouts, expenditures in EMS should be around 0.55 percent of the GDP between 2012 and 2018. In a scenario where the number of students grows significantly (with 953,000 more students enrolled), implying a large reduction in dropouts and representing an important step towards universalization of EMS, expenditures would represent 0.66 percent of its GDP in the

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55. Expected results for Policy Area III of the reform. The Federal Government is moving quickly to expand the scholarship program and better target students at risk of dropping out (usually the poorest). It is expected that this prior action will result in nearly 9,000 schools being empowered to support students at risk of dropping out, reducing dropouts, especially for the poor that dropout for economic reasons.13 In addition, making EMS mandatory has put more pressure on state and other educational authorities (as well as parents) to ensure that all Mexican youth enroll and graduate from EMS, including states to budget for the requisite supply expansion. This will have a direct impact on increasing the gross enrollment rates in general and that of students from the poorest four deciles in particular, that consistently have less access to upper secondary education in particular.

VI. OPERATION IMPLEMENTATION

Poverty and Social Impacts 56. The reform will have only positive impacts on the poor and is closing the gaps in both coverage and quality, helping the bottom 40 percent rise up. When fully implemented, the reform will lead to higher enrollment and graduation rates for the two poorest quintiles, bringing them closer to the national average. The reform primarily targets public schools, where the great majority of disadvantage students are enrolled. Therefore, while the reform should bring higher quality services to all students, students from public schools with relatively more disadvantaged backgrounds, will benefit more than their peers in private schools.

57. The increase in coverage and graduation rates in recent years has been decidedly pro-poor. According to the ENLACE test, between 2008 and 2013, the proportion of students enrolled in the final year of EMS that attended a school in a locality with a very high and high marginality index increased steadily from 8 percent to 10.5 percent (Table 4).14 The change in the composition of students enrolled in EMS favoring disadvantaged students took place in a context of increasing overall enrollment rates from 3.6 million in 2006 to 4.2 million students in 2011.

Table 4: Percent of students in the final year of EMS, by marginality level

2008 2009 2010 2011 2012 2013

Very High 0.4% 0.4% 0.5% 0.6% 0.7% 0.7%

High 7.6% 8.1% 8.5% 8.6% 9.2% 9.8%

Medium 8.4% 8.3% 8.5% 8.5% 8.6% 8.7%

Low 17.7% 17.8% 17.7% 17.5% 18.0% 18.1%

Very Low 65.9% 65.4% 64.8% 64.8% 63.5% 62.8% Source: ENLACE EMS

same period of time (Uribe, et al. 2012). These projections underline that the financial implications for making EMS compulsory will likely be quite significant over the next few years. 13 Encuesta Nacional de Deserción en la Educación Media Superior, 2012. 14 The National Population Council (Consejo Nacional de Población, CONAPO) ranks all localities according to their marginality index, a weighted average of literacy, access to basic public utilities, household infrastructure and average wages. All localities are ranked with ratings from very high marginalization, high marginalization, medium marginalization, low marginalization, and very low marginalization. While there are a range of people living in each of these localities, there are few non-poor living in areas with high and very high marginalization. For all the methodological details see: http://www.conapo.gob.mx/

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58. The evidence shows that education quality (as measured by learning outcomes of a standardized test) is improving for all, particularly the poor. Despite the fact that recent improvements in enrollment rates have provided access to more marginalized students who were typically excluded from EMS, ENLACE results show significant improvements in learning outcomes in mathematics and constant results in language. In 2008, 73 percent of students in the poorest localities (very high marginality) had unsatisfactory results in math compared to 42 percent in the richest localities (very low marginality). In 2013 these percentages fell to 45 and 25 percent, respectively, reducing the gap from an initial level of 31 percentage points to 20 percentage points, in a context of an overall improvement in math learning outcomes (Figure 4). As is shown by Figure 5, trends in learning outcomes in Spanish had shown a long term constant trend, however, the poor to rich gap in the proportion of students with an unsatisfactory result in Spanish decreased between 2008 and 2013. The improved access to EMS among poor students, coupled with a disproportionate increase in learning for this same group, suggests that the reform had a profound effect on the system’s ability to provide equality of opportunities in Mexico.

Figure 4: Percent of students with an unsatisfactory result, math, by marginality

Source: ENLACE EMS 2008, 09, 10, 11, 12, 13

0

10

20

30

40

50

60

70

80

2008 2009 2010 2011 2012 2013

Very High High Medium Low Very Low

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Figure 5: Percent of students in an unsatisfactory level of learning, Spanish, by marginality

Source: ENLACE EMS 2008, 09, 10, 11, 12, 13

59. There do not appear to be significant differences in coverage by gender, but learning outcomes vary. Traditionally, men received more education on average than women. This disparity has largely disappeared; among youth aged 15 to 17 years old, the enrollment rate is 76 percent for both males and females. Overall, male students are significantly more likely to drop out of upper secondary before graduation, due to the higher opportunity cost of studying versus entering the labor market.15 In terms of learning outcomes, in Mexico as is the case in most developing countries, men do better in math and women in language.16 According to ENLACE, while the men-to-women gap in math has remained largely constant between 2008 and 2013, with men scoring 27 points higher than women (581 to 554), the gap in Spanish has increased over time, with women now scoring on average 30 points higher than men (506 to 476).

Environmental Aspects 60. None of the elements under the proposed program are likely to have adverse effects on the environment. The program does not support actions linked to the construction or rehabilitation of schools, or other civil works that would likely impact the environment. No effect is expected on forest and other natural resources.

15 Instituto Nacional para Evaluación de Educación. 2011. La Educación Media Superior en México. 16 For an explanation of gender differences in learning outcomes and their evolution overtime, see Guiso, Monte, Sapienza and Zingales (2008) “Culture, gender and math,” Science, vol, 320, May 2008.

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

50.0

2008 2009 2010 2011 2012 2013

Very High High Medium Low Very Low

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Implementation, Monitoring and Evaluation 61. The Secretariat of Public Education (SEP), through its Under Secretariat for Upper Secondary Education (Subsecretaría de Educación Media Superior, SEMS), is responsible for the implementation of the DPL series. Although the reform represents a joint effort of many actors in the education sector, SEMS is the lead agency coordinating and supporting the reform. Together with the Secretariat of Finance and Public Credit (Secretaría de Hacienda y Crédito Público, SHCP), SEMS will collect the necessary data to assess the implementation of the program, including evidence on the achievement of prior actions and reporting on progress toward output and outcome indicators. This implementation arrangement worked well for the previous operations of the DPL series.

62. Evaluation of the quality of EMS is at the heart of the reform, as well as the accompanying technical cooperation agenda between SEMS and the Bank. Specifically, this operation supports the establishment of a new autonomous agency that will be responsible for evaluating the performance of schools, teachers, and students throughout Mexico’s education system, and the technical assistance program that accompanies the DPL is heavily focused on evaluation. With regards to monitoring, the Information System for Education Management of EMS (Sistema de Información para la Gestión Escolar de la Educación Media Superior, SIGEEMS) is a system operating in all federal schools issuing a clear diagnosis of the most important challenges in each school and the evolution of basic indicators over time, improving the effectiveness of schools’ improvement plans.17 SEMS is in a dialogue with states and other upper secondary education providers to develop a unitary information system for the schools, offering the SIGEEMS as the initial platform. Several systems have accepted this expanded system. In addition, many of the institutions created under RIEMS also have monitoring functions. COPEEMS, for instance, which systematically gathers data to evaluate the quality of individual schools for the purposes of accreditation, makes this data available to stakeholders.

Public Financial Management 63. The public financial management (PFM) systems at the Federal level are adequate to support development policy lending in the country. This has been documented in several Bank reports (i.e. the Country Financial Accountability Assessment, CFAA), the Country Procurement Assessment Report (CPAR), and other analytical work, including knowledge services products and other DPLs approved in 2012. As envisioned in the last CPS, which was discussed by the Board on April 8, 2008, the Bank has been collaborating with the Government at the federal and sub-national level in strategic PFM areas aimed at modernizing and reforming public finances, and improving transparency and accountability of public expenditures. This has been supported through a flexible and tailored package of financial, knowledge and convening services.

64. During prior administrations, the Government introduced a number of laws and policy reforms in public finances aimed at improving fiscal responsibility and transparency by modernizing the budget process and creating a more efficient and 17 The SIGEEMS complements the existing Formato 911 monitoring system in the federal schools. The 911 system, which operates in all schools at both the basic and upper secondary levels, contains over 300 indicators. In addition to the school-based indicators, SIGEEMS includes information on students, learning outcomes and annual goals set by the school principals.

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transparent fiscal framework in line with international good practices. The current administration has launched a reform program and is working towards achieving various PFM reforms in areas such as budgeting, accounting, financial reporting, transparency, and modernization of its treasury operations, amongst others. The funding from this DPL will support the Federal Expenditure Budget (Presupuesto de Egresos de la Federación, PEF) and, accordingly, will be subject to provisions of the annual PEF Law, the Federal Budget and Fiscal Responsibility Law, the Government Accounting Law, and the Manual of Budget Procedures among others. The PEF is published in a timely manner and is available on the SHCP website18 for the current and prior years.

65. The set of legal and regulatory arrangements, together with the country financial management operating systems, provides for sound budget formulation, execution and internal control arrangements for execution of public expenditures. The Federal Government has implemented a financial information management system (Sistema de Contabilidad y Presupuesto, SICOP) at the federal level, and there are relevant advances regarding accounting harmonization at the Federal level. The newly created Evaluation Unit in SHCP, in coordination with CONEVAL, has been developing a system to measure program performance and consolidate evaluations. There is evidence that this program performance information is used during budget preparation between SHCP and line ministries. On treasury operations, the Government has made significant advances in modernizing its treasury operations and implementing a Single Treasury Account system. On internal control, the Government is undergoing a reform aimed at eliminating the Ministry of Public Administration (Secretaría de la Función Pública, SFP) and transferring some of its functions to the SHCP, which will eliminate the dependency of the Heads of the Internal Control Units to the SFP, establishing a line of reporting to the Head of each public entity. In parallel, there is an initiative for creating an Anti-Corruption Agency. Both proposals are related and are being discussed in Congress.

66. Notwithstanding the reform progress, there are important challenges in the implementation of some of these reforms. For example, regarding accounting harmonization, the overall implementation process at subnational level has faced major challenges, such as the lack of information systems to implement the accounting harmonization regulations; the SICOP only processes and consolidates information at an aggregated level, which entails that entities usually need to maintain their own information systems for keeping detailed accounting registries, and it is still pending the issuance of a modernized Treasury Law.

67. As for external oversight, the Federal Supreme Audit Institution conducts, on a regular basis, a number of audits (i.e. financial, performance and compliance audits) on Federal Government programs. The annual public accounts are prepared and sent to Congress within four months of the end of each fiscal year. The external audit of these accounts is undertaken by the Auditor General’s office and is submitted to the legislature fourteen months after the end of each fiscal year in accordance with national legislation. Audit reports are comprehensive and there is a system in place to follow up on audit findings and recommendations, in coordination with the SFP. The results of audits by the Auditor General’s office are made public in the Annual Audit Report on the Federal Public Accounts. Recent amendments to the Federal Constitution and a new Law on Supreme Auditing and

18 http://www.apartados.hacienda.gob.mx/presupuesto/temas/pef/2013/index.html

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Accountability have contributed to the overall strengthening of country fiscal transparency and accountability.

68. The current Government has the objective to align public procurement more closely with economic expenditure policy, aimed at producing value for money, ensuring transparency, economy and efficiency, while improving the overall quality of the goods and services. In addition, operational changes, as well as amendments to the legal and regulatory framework advanced in 2009 and 2010, have taken several important steps towards addressing the issues identified in previous World Bank assessments of the federal procurement system in Mexico (2007,19 2010,20 and 201121). As envisioned in the Country Procurement Strategy, the World Bank is collaborating with the Mexican Government in modernizing its public procurement and other aspects of the PFM. This support is being provided by a number of knowledge services as well as lending instruments. 69. Mexico’s external sector has operated successfully under a foreign exchange rate regime. The exchange rate flexibility has been a key shock absorber of repeated bouts of global risk aversion, allowing sovereign and financial markets to remain stable. Although the exchange rate has fluctuated significantly, no major balance sheet or pass-through effects have occurred. In pursuing the reduction of excessive currency volatility, the central bank introduced a new Foreign Exchange rule last November, selling U.S. Dollars when the peso depreciates more than 2 percent in any given day. This has been considered to have an important signaling effect. Mexico has significant foreign exchange buffers to deploy if necessary to limit potential overshooting and dysfunctional market conditions. Mexico’s external position and real exchange rate are consistent with underlying fundamentals and desirable policy settings.22

Disbursement and Auditing 70. The SHCP has informed the Bank that Nacional Financiera (NAFIN) will be the financial agent of the Government with regard to this operation. Under this arrangement, upon effectiveness of the loan, the Bank will deposit the single tranche disbursement to a designated account in US Dollars of the financial agent23for subsequent credit by the financial agent to an account of the National Treasury (SHCP/Tesorería de la Federación, or TESOFE) used for budgeted expenditures. Based on the review of the financial agent’s 2011 and 2012 audit reports and the extensive experience between the Bank and the financial agent regarding funds flow from Bank-financed projects, there is no evidence that the banking control environment into which the loan proceeds would flow is other than adequate.

19 The World Bank Country Procurement Assessment Review (CPAR) of 2007 (prepared jointly with the IDB) identified issues in the public procurement system, including excessive regulatory complexity and need for more effective governance and coordination. 20 Relevant aspects of the legal, operational and institutional structures of the federal procurement system in Mexico was reviewed as part of the Strengthening the Business Environment for Enhanced Economic Growth Development Policy Loan, November 2010. 21 World Bank Knowledge Services, November 2011 22 Source: IMF Staff Report for the 2012 Article IV Consultation on Mexico. November 2012. 23 The use of a financial agent and designated account is a local standard procedure established by the Government of Mexico, and the fiduciary roles and responsibilities of the financial agent are included in a legal agreement between the SHCP and the financial agent called “Contrato de Mandato.”

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71. Based on the overall assessment of the Government’s current PFM and the conclusion that the fiduciary arrangements for this DPL are adequate, the Bank will not require an audit of the designated account. During implementation, and after funds are disbursed, NAFIN would provide the Bank with a written confirmation supporting the described funds flow transaction in the above paragraph, and no additional fiduciary arrangements are deemed necessary.

Risks and Risk Mitigation 72. The overall Risk Rating is Moderate. The operation is subject to three sets of risks: i) macroeconomic risks; ii) political, governance and stakeholder risks, and iii) sector policies and institutions risks.24 With regards to macroeconomic risks, an economic slowdown could make it difficult for the Mexican Government and state governments to finance the reform program and provide additional resources. However, as explained in a previous section, the fundamentals of the Mexican economy do not lead to foresee a slowdown in coming years 2014 to 2016. Furthermore, the strong consensus on the importance of the reform makes it unlikely that the macroeconomic situation will prevent the Government from implementing the reforms described in the MUSE DPL series. With regards to political risk, the new Government has endorsed and even furthered the upper secondary education reform, and is unlikely to change course significantly, allowing the reform to consolidate gains and achieve its goals. However, the recent Constitutional Reform, which aims to improve quality of education, has caused a series of protests by the Coordinadora Nacional de Trabajadores de la Educación (CNTE), a Union which controls a small fraction of basic education teachers in Mexico (100 thousand affiliated out of a total 1.3 million teachers). While some concessions have been made to CNTE through these negotiations, it is not expected that the overall program proposed under this DPL would be affected by this situation since upper secondary education (Educación Media Superior, EMS) teachers are not affiliated to CNTE. The teachers unions that do include EMS teachers, such as the Sindicato Nacional de Trabajadores en Educación, have generally supported the RIEMS. With respect to the institutional risk, there is a risk that the complex nature of the upper secondary education system could impact effective and timely implementation of the RIEMS. Currently, the system is characterized by more than thirty separate systems, with uneven technical capacity across federal, state, autonomous universities, and private establishments that deliver EMS, a complexity that is compounded by the multi-institutional nature of the reform. This risk is mitigated by the creation of SEMS, which has strengthened the coordination of the system and has placed the responsibility of the reform under the purview of one entity. The RIEMS has fostered collaboration and consensus among different actors and has introduced incentives for the different EMS education establishments to implement the reform, such as financial and technical support to keep pace with the reform, which also serves to mitigate the risk.

24 For a more complete discussion of risks to the DPL series, see DPL II Program Document

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ANNEX 1: LETTER OF DEVELOPMENT POLICY

34

35

36

37

38

39

40

TRANSLATED LETTER OF DEVELOPMENT POLICY Mexico, D.F., October 21, 2013

Re: Letter of Development Policy for the

Third Development Policy Loan in Support of Upper Secondary Education

Reform in Mexico Mr. Jim Yong Kim President World Bank I hereby express the commitment of the Government of Mexico to continue improving the coverage and quality of education services in the country to boost productivity and competitiveness for all Mexicans, within a framework of diversity. In this context, and in accordance with the policy on external credit financing established by the Secretariat of Finance and Public Credit, a Third Upper Secondary Education Development Policy Loan has been developed with assistance from the World Bank. This third operation is directly linked to the two previous operations dated April 9, 2010 and February 8, 2012, respectively. As part of the series, this operation aims to monitor the process of the Upper Secondary Education Reform (RIEMS) by supporting new actions and policies to contribute to the improvement and consolidation of the Upper Secondary Education System.

The following paragraphs describe the context of Upper Secondary Education in Mexico and the reform process supported by the requested loan.

Context and Challenges of Upper Secondary Education It is essential to give youth the opportunity to enter, attend, and graduate from a quality education to acquire the skills that enable them to successfully build their future, whether they choose to enter the workforce or continue into higher education. Furthermore, upper secondary education is essential to form responsible citizens that contribute to the consolidation of democracy and to build human resources to improve productivity and competitiveness in Mexico. Upper Secondary Education also contributes to social stability and progress, since youth that have the opportunity to access education are less prone to violence, addictions, and other risks. Since the introduction of the RIEMS, upper secondary education has experienced significant progress in most areas. However, this education level is still facing great challenges. Due to the recent legislation making upper secondary education compulsory, one of the most important challenges for the Mexican state is to provide educational services for the entire population with a view to achieving universal upper secondary education by the 2021-22 school year. At present, a high percentage of the population still does not have access to upper secondary education services. For this reason, the Under-Secretariat of Upper Secondary Education has set the goal of achieving a gross enrollment rate of 80 percent for students in

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the formal school system and at least 85 percent of total coverage by 2018, an improvement of more than 14 percentage points in six years. The prevention of dropouts is essential to achieving this goal. Nearly 1,800 students leave school daily, adding up to 650,000 each year. Therefore, this administration seeks to reduce the dropout rate from 15 to 9 percent between 2013 and 2018, a reduction one and a half times greater than that achieved in the last twenty years. Regarding the quality of education, the National Development Plan 2013-2018 clearly underlines the importance of providing quality education to all Mexicans. This is still a considerable challenge at the upper secondary level because despite the advances in student learning reflected in national and international tests (such as EXCALE, ENLACE, and PISA), especially in the area of mathematics, significant gaps remain. In fact, about one-fifth of students in the last grade of upper secondary education appear to be at high risk of not being able to fully participate in the knowledge society or meeting future education, work, or citizenship challenges that will allow them to contribute to the country’s productivity. In order to raise the quality of education, the Government of Mexico has undertaken a major constitutional reform in education by strengthening the assessment of the whole education system and the professionalization of the teaching career. This new reform is expected to strengthen the processes of initial and continued teacher training and the selection and evaluation of teachers, principals, and supervisors to improve the quality of education. It also seeks to create a national evaluation system that is able to generate useful information and issue guidelines to help improve the quality and equity of the education system. Equity issues in upper secondary education are also crucial. Despite recent progress in this field, marked differences in access to and quality of education prevail between youth in higher economic strata and those located in highly marginalized areas. For example, the probability of accessing upper secondary education for youth in the highest income decile is three times higher than for those in the poorest decile. With the recent declaration of mandatory upper secondary education, the population hitherto excluded will need to have access to this level. This, in turn, implies providing scholarships and other support to facilitate the retention of disadvantaged groups and to ensure that the education they receive is of the same quality as the rest of the population.

In this sense, the goal for 2018 is that more than two million youth from disadvantaged groups (such as households living in poverty, indigenous groups, and persons with disabilities) are provided with a scholarship, whether from the Oportunidades Program or SEP. This means achieving universal coverage for all youth from the bottom 4 deciles of income per capita. In this scenario, it is necessary to continue strengthening education policies to improve the coverage, quality, and equity of upper secondary education so that it becomes a mechanism through which youth acquire the skills that prepare them for life in society and for contribution to the country’s productivity through their participation in higher education and the labor market.

Advancing the Upper Secondary Education Reform (RIEMS) The implementation of the reform has been possible due to the combined work of the federal and state education authorities, autonomous and private systems, educational authorities of

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higher education institutions represented by the National Association of Universities and Institutions of Higher Education (ANIES), and the Legislative branch. The Secretariat of Public Education, through the Under-Secretariat of Upper Secondary Education, continues to coordinate the necessary actions for the implementation of the RIEMS and the constant revision of educational policies within the framework of the reform to improve this education level.

Upper Secondary Education has undergone structural changes after six years of the RIEMS implementation that have helped to start addressing in a more strategic way the challenges concerning the coverage, equity and quality of this level of education through four central themes:

I. The Competency-Based Common Curriculum Framework (MCC). In this

approach, the academic focus is shifted away from the memorization/encyclopedic/traditional model towards a model focused on learning through competencies (development of skills and abilities). It introduced the common curriculum framework organizing upper secondary education around three types of competencies: the generic, the subject specific (basic and extended), and the professional (basic and extended). A Graduate Profile, which provides a regulatory framework, was defined based on the generic and disciplinary competencies.

II. Supply of learning modalities. The formal definition of five different ways to provide education services: regular classroom, intensive, virtual, self-directed, and mixed instruction.

III. Administrative mechanisms. The development of the operational processes required

to implement the MCC in the context of any of the five learning modalities. Includes training and retraining of teachers; the professionalization of principals; tutoring, vocational guidance, and scholarships focusing on students’ needs; the definition of minimum standards for schools and the corresponding investment for adequate infrastructure and equipment; the definition of rules for students transferring between subsystems; continuous evaluation mechanisms; and linkages with the labor market.

IV. System of entry and permanence. The verification procedures for accrediting

schools in line with the three previous axes A brief description follows of the major achievements by the RIEMS and some of the most important decisions and actions taken in the last year. According to data from the National Council for Assessment in Upper Secondary Education (COPEEMS), currently 80.7 percent of upper secondary education students attend schools that have adopted the MCC. The goal set to improve learning in young Mexicans is that all federal and state systems adopt the MCC before the end of this administration. Similarly, it is intended that at least 50 percent of the enrollment at this level is at institutions within the National Upper Secondary Education System (SNB), which has currently accepted 658 schools and which, in turn, serve 12.7 percent of students in the upper secondary education system. Although the percentage of enrollment in schools that have gained access to SNB is still small, it is noteworthy that the number of schools that are members of the SNB has

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doubled in less than a year. It is therefore estimated that the target set for the end of this administration is feasible. Based on the profiles for teachers and principals introduced by the RIEMS and in order to give teachers and principals the training and tools necessary to improve their classroom practice, an updated national training course for principals has been introduced and the national teacher training program (PROFORDEMS) is being redesigned. About 1,600 principals have completed the first stage of training and it the intentions is to train a total of 7,510 by July 2014. In addition, the SNB’s Steering Committee has approved the guidelines for the recognition of alternative teacher training. These new policies will undoubtedly help train all teachers and principals under the above-mentioned schemes or those recognized as equivalent in a span of about two or three years. Under the supply of learning modalities, whose main objective is to expand educational offerings to provide opportunities to groups with diverse interests, needs and contexts to participate in upper secondary education, the Federal Government launched the Community TV-high school option (telebachillerato) during the current school year (2013-14), which aims to provide quality upper secondary services to youth in rural, remote, and marginalized areas that currently do not have access to this level of education. To achieve this goal, the existing capacity of the telesecundarias has been used and the lessons learned from the state telesecundarias and telebachilleratos have been taken into account in the new design of the telebachillerato. A movement against dropouts has been adopted as the main strategy to decrease the number of students out of school in upper secondary education. The movement was launched earlier this school year (2013-14) and includes: (i) new scholarships for students at greater risk of dropping out are granted by a committee within the same school in the first months of the school year, and (ii) a toolbox that includes different materials and strategies for principals (in coordination with different school actors) to choose according to their students’ contexts in order to achieve a greater impact. A strategy that puts the school at the center has been chosen since, although it is true that the main causes of school dropouts are known nationally (little relevance, socioeconomic background, youth pregnancy, etc.), determinants at particular contexts vary widely. Thus, we believe that local actors best know the reasons why students leave upper secondary education, and therefore believe they can address them in a more effective way with the support of education authorities. The National Academic Tutoring System, the Vocational Guidance Program, the Construye-T Program, and the Program for Promotion of Reading continue to operate to provide academic, psychosocial, and emotional support for students to continue in upper secondary education. Similarly, the Infrastructure Program and the additional support for schools to enter into the SNB remain in order to offer a greater number of youth an educational service with minimum standards in terms of facilities and equipment (linked to adequacy, functionality and hygiene, safety, and educational campus facilities). The Government continues to implement the Scholarship Program to fight inequality in upper secondary education. The total number of scholarships for this school year is more than 722,000, with a greater diversity in the scholarship modalities: against dropout; to access, stay and conclude upper secondary education; for training and education in the workplace for people with disabilities; and for children of members of the military. Moreover, a Statistical

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and Geographic Information System for upper secondary education has been created to, among other things, compile the necessary data from students in all subsystems and enable sharing of this information to facilitate the transition of students between schools, to ensure fairness in entry, permanence and graduation of upper secondary education students. In order to increase the relevance of upper secondary education, several innovative strategies have been developed to link education and work, such as the design and implementation of the dual training model, the National Competencies System, and the Mexican Certification Framework. In particular, I refer to the Dual Training Mexican Model, which seeks the harmonious linkage of theory and practice by extended internships while developing generic and subject-specific competencies to achieve an integral education. This first stage of the dual training program involves 12 states: Puebla, Jalisco, Sinaloa, Coahuila, Chihuahua, Guanajuato, Sonora, Tlaxcala, Baja California, Chiapas, Nuevo Leon, and Mexico, with more than 150 companies in collaboration with about 50 schools that will serve approximately 1,000 students. Finally, we are working intensively with state authorities to encourage certain fundamental changes, including the selection of principals through competition. Based on the progress made through the RIEMS, the Secretariat of Public Education (SEP) supports the formalization of a third operation for a Development Policy Loan, considering the following specific actions of the reform:

1. The modification of the General Law of Education for the recognition of equivalences to facilitate the transfer of students between upper secondary education subsystems.

2. The provision of legal, financial, and technical autonomy and new roles and responsibilities to the National Institute for the Evaluation of Education (INEE), including those related to the evaluation of upper secondary education.

3. The introduction of regulations to recognize alternative training programs for teachers in the National Upper Secondary Education System (SNB).

4. The introduction of a new scholarship modality in SEP’s scholarship program to serve students at risk of dropping out of upper secondary education.

5. The amendment to the General Law of Education to reflect that upper secondary education is mandatory.

These actions represent essential elements of the reform and constitute an important part of the Government’s program. Therefore, the support of the World Bank, through this third loan, will be essential to strengthen the technical actions that comprise the reform. As is clear from the above description, the Government of Mexico, through the Secretariat of Public Education (SEP), is making significant efforts to continue advancing in the field of education and in the efficiency of the corresponding social spending. The Under-Secretariat of Upper Secondary Education is committed to further progress in these areas, for which it requires the continued support of the World Bank in the implementation of the reform. These actions will contribute to achieving the goal of a Mexico with quality education as depicted in the National Development Plan 2013-2018, which establishes specific objectives for developing the human capital of Mexicans and ensuring inclusion and equity in the Educational System, among others. We also expect that the actions taken by the Under-Secretariat of Upper Secondary Education and supported under this

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financial operation contribute to form more productive and innovative young Mexicans that are able to fully develop their aspirations. In light of the above, the Government of Mexico, through the Secretariat of Public Education (SEP) seeks the approval of the Third Upper Secondary Education Development Policy Loan. Sincerely, THE UNDERSECRETARY DR. RODOLFO TUIRÁN

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ANNEX 2: THIRD UPPER SECONDARY EDUCATION DPL POLICY AND RESULTS MATRIX

Table A2.1: Policy and Results Matrix

The proposed Development Policy Loan (DPL) aims to support the Government in the implementation of Mexico’s Integral Upper Secondary Education Reform (Reforma Integral de la Educación Media Superior, RIEMS) to improve the internal efficiency and quality of EMS. The programmatic series would support actions in the following three areas addressing the key constraints of the EMS system: (i) improving flexibility of EMS, (ii) enhancing quality of education, and (iii) reducing the opportunity cost of EMS.

Prior actions Results

Prior Actions under DPL I Prior Actions under DPL II Prior Actions under DPL III

1. Improving Flexibility of the National Upper Secondary Education System SEP has established a National Upper Secondary Education System and established the institutional basis of said system.

In order to improve the employment prospects for graduates of the National Upper Secondary Education System, COPEEMS has approved eighty five technical programs for the National Upper Secondary Education System covering, among others, the fields of agriculture, services, administration and information.

The Government has recognized equivalences of subjects across schools to facilitate the transfer of students between systems.

(1) Index of entry into the Sistema Nacional de Bachillerato. Baseline (2007-08 school year): 0%. End of program (2014-15 school year): 20%

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SEP has established the set of minimum competencies by subject that students need to achieve by the end of upper secondary education in the National Upper Secondary Education System.

Stakeholders have formed a committee to create national competence standards for technical programs in EMS.

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2. Enhancing Quality of the National Upper Secondary Education System

SEP has established a national evaluation system for the National Upper Secondary Education System.

In order to improve the quality of Upper Secondary Education, promote greater transparency in evaluation, and facilitate the development of new curricula for the National Upper Secondary Education System, INEE has disseminated the results of the EXCALE test, which was administered to students in the last year of the National Upper Secondary Education System between March and May of 2010.

The Government has: (i) established INEE's mandate, functions and responsibilities and internal organization; and (ii) granted INEE full legal, technical and financial autonomy and new responsibilities, including those related to the evaluation of Upper Secondary Education.

(2) Average annual dropout rate in EMS. Baseline (2007-08 school year): 16.3%. End of program (2014-15 school year): 12%

(3) Percentage of students scoring “good” Percentage of students scoring “good” or “excellent” on the ENLACE assessment in Spanish: Baseline (2007-08 school year): 52.3%. End of program (2014-15 school year): 53%) Mathematics: Baseline (2007-08 school year) 15.6%. End of program (2014-15 school year): 37%

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SEP, in collaboration with UPN and ANUIES, has developed an Upper Secondary Education Teacher Training Program – PROFORDEMS – which is benefiting teachers from all States.

In order to improve the administration and implementation of PROFORDEMS, SEP has transferred the functions of supervision and evaluation of PROFORDEMS to SEP’s Academic Development Unit.

The Government has issued regulations to officially recognize alternative teacher training programs under the National Upper Secondary Education System.

(4) Percentage of students attending schools in very highly marginalized localities scoring “good” or “excellent” on the ENLACE assessment in Spanish: Baseline (2007-08 school year): 22.6%. End of Program (2014-15 school year): 31%] Mathematics: Baseline (2007-08 school year): 6%. End of Program (2014-15 school year): 29%

The Government has created a civil association (COPEEMS) to evaluate the entry of schools in the National Upper Secondary Education System.

In order to establish clear rules regarding equal opportunity for all schools to join the National Upper Secondary Education System, the Executive Committee for the National Upper Secondary Education System has approved a modification of the rules which govern the school accreditation system.

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3. Reducing Opportunity Cost of Upper Secondary Education

The Government has consolidated its scholarship program targeting poor students who are not covered by the Oportunidades Program or by any other scholarship program.

In order to expand the coverage of the SIGUELE Program at the state level, SEP has established the guidelines to implement the SIGUELE Program at the state level, including the provision of technical support to the states to implement said program.

The Government, through SEP, has introduced a new modality to award scholarships under SEP scholarship program in order to improve the targeting of students at risk of dropping out.

(5) Gross Upper Secondary Education enrollment (youth ages 15 to 17). Baseline (2007-08 school year): 58.6%. End of program (2014-15 school year): 68.7%

(6) Gross Upper Secondary Education enrollment for students from households in the first four deciles of income per capita. Baseline (2012-13 school year): 61.8%. End of program (2014-15 school year): 64%

The Government has made Upper Secondary Education compulsory.

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Table A2.2: Indicators Measurement

The DPL indicators have been aligned with SEP indicators since: (i) SEP indicators are similar to previous DPLs’ indicators and therefore adequate for measuring the PDO objectives of this operation and the gains in the three policy areas supported under the DPL series; (ii) SEP has/will collect the data required to monitor its own indicators, making them more reliable and timely than the previous indicators; and (iii) this will avoid unnecessary duplication of M&E efforts.

Indicator Measurement Comments and Reconciliation with Indicators

from DPL II (1) Index of entry into the Sistema

Nacional de Bachillerato. Baseline (2007-08 school year): 0%. End of program (2014-15 school year ): 20%

Proportion of students in upper secondary education enrolled in schools that are part of the Sistema Nacional de Bachillerato in relation to the total enrollment of Upper Secondary Education.

IISNB = �MTIISNBMTEMS

� ∗ 100

Where: IISNB = Index of entry into the Sistema Nacional de Bachillerato MTIISNB = Total enrollment of students in schools that are part of the SNB MTEMS = Total enrollment of students in Upper Secondary Education

This indicator is more reliable than the previous indicator “Percent of upper secondary schools that accept student transfers and validate equivalences.” There is no data yet to track the percentage of schools that accept transfers and validate equivalences. However, the percentage of students enrolled in schools that have entered the SNB is the closest proxy, since one of the requirements to be part of the SNB is to accept transfers and validate equivalences. This indicator underestimates the percentage of students in schools that accept student transfers and validate equivalences since there are schools that accept student transfers but are not yet part of the SNB. Nonetheless, the indicator was built with the best information available. This indicator is part of SEP’s official outcome indicators and is based on school-level administrative data (“formato 911”) and COPEEMS accreditation information. This indicator builds on several aspects

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supported by the DPL series under the policy area for improving flexibility of Upper Secondary Education. The greater institutional capacity and flexibility of the system and the appropriate implementation of the competency based curriculum (all prior actions supported under the DPL series) are expected to contribute to increase the number of students in the SNB.

(2) Average annual dropout rate in EMS. Baseline (2007-08 school year): 16.3% End of program (2014-15 school year): 12%

Proportion of students that drop out in each school year in relation to the total enrollment at the beginning of the school year in upper secondary education. The dropout rate for a given grade is computed as one minus the share of students concluding a given school grade relative to initial enrollment for that same grade.

𝐴𝐸𝑛 = �1 − �𝑀𝑇𝑛+1− 𝑁𝐼𝑛+1+𝐸𝐺𝑛𝑀𝑇𝑛

�� Where: 𝐴𝐸𝑛 = Upper Secondary Education school drop put inidex 𝑀𝑇𝑛= Upper Secondary Education total enrollment, at the beginning of the cycle (n, n+1) 𝑀𝑇𝑛+1 = Upper Secondary Education total enrollment, at the beginning of the cycle (n+1, n+2) 𝑁𝐼𝑛+1 = Students entering the first year of Upper

This indicator has been updated to be better harmonized with SEP, and substitutes previous indicator #4. The previous indicator #2 “Reduction in dropout rate in upper secondary education” tracked the cumulative value over three years of the new proposed indicator. Therefore, there is a 1-to-1 relationship between this and the previous indicator. It also replaces previous indicator #4, “Increased completion rates in EMS for the lowest income quintile,” since there is a strong correlation between not dropping out and completing. This indicator is part of SEP’s official statistics and is therefore more easily tracked than both of the previous indicators. It is based on school-level administrative data (“formato 911”). It is expected that the education policies to create and improve EMS assessment and accreditation systems and teacher training, will contribute to improve the quality of EMS and thus to reduce dropout rates, rendering the system more

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Secondary Education in the cycle at the beginning of the cycle (n+1, n+2) 𝐸𝐺𝑛= Upper Secondary Education graduates through the cycle (n, n+1).

efficient. In addition, prior actions under the policy area for reducing opportunity costs, such as the new scholarship for students at risk of dropping out and making EMS mandatory are also expected to contribute to reducing dropout rates, especially for the poor (a national survey on dropout rates showed that one of the main reasons for students to drop out is the lack of quality and relevance of the education they receive as well as economic reasons).

(3) Percentage of students scoring “good” or “excellent” on the ENLACE assessment in

Spanish Baseline (2007-08 school year): 52.3% End of program (2014-15 school year): 53%

Mathematics Baseline (2007-08 school year): 15.6% End of program (2014-15 school year): 37%

Share of students with good or excellent results in the standardized test ENLACE.

This indicator is the same as the previous indicator #3. ENLACE is a census test, mandatory for all students in their final year of EMS, measuring math and language competencies. It is expected that the education policies to create and improve EMS assessment and accreditation systems, as well as the commitment to improve teacher quality through teacher training, will contribute to improve the quality of education as measured by standardized tests. (There is strong evidence linking teacher quality, as well as robust accreditation and assessment systems, to learning outcomes).

(4) Percentage of students attending schools in very highly marginalized localities scoring “good” or “excellent” on the ENLACE assessment in

Spanish

Share of students attending schools in very highly marginalized localities with good or excellent results in the standardized test ENLACE.

This indicator, for both Math and Spanish, has been added to reflect the equity dimension of improvements in quality. Students are identified as attending a school located in a highly marginalized locality as classified by the Mexican Government’s National Population Agency (CONAPO).

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Baseline (2007-08 school year): 22.6% End of program (2014-15 school year): 31%

Mathematics Baseline (2007-08 school year): 6% End of program (2014-15 school year): 29%

It is expected that the education policies to create and improve EMS assessment and accreditation systems, as well as the commitment to improve teacher quality through teacher training for all teachers, will contribute to improve the quality of education, especially for students in very highly marginalized localities that usually have lower quality teachers than schools in less marginalized communities.

(5) Gross Upper Secondary Education enrollment (youth ages 15 to 17) Baseline (2007-08 school year): 58.6% End of Program (2014-15 school year): 68.7%

Number of students enrolled at the beginning of the school year (without age differentiation) divided by the population between 15 and 17 years old.

𝑇𝐵𝐶15−17 =𝑀𝐴𝑇𝑅𝐸𝑀𝑆

𝑃𝑂𝐵𝑇𝑂𝑇15−17∗ 100

𝑀𝐴𝑇𝑅𝐸𝑀𝑆 = Total enrollment of Upper Secondary Education at the beginning of the school year (without age differentiation) 𝑃𝑂𝐵𝑇𝑂𝑇15−17= Total population between 15 and 17 years old.

This indicator has been added to better align with Government targets. It represents SEP’s current overarching target for this administration. This indicator is part of SEP’s official statistics and is based on school-level administrative data (“formato 911”) and CONAPO Census 2010 data for population. It is crucial to monitor this indicator to assess the pace of implementation of the legislation that makes EMS mandatory (a prior action under the policy area to reduce opportunity costs). This indicator will indirectly account for the poorest population that consistently have less access to upper secondary education (i.e. 100% of the population in the 10th of income per capita is already enrolled in EMS).

(6) Gross Upper Secondary Education enrollment for students from households in the first four deciles of income per capita.

The proportion of population that belongs to households in the first four deciles of income per capita and that attend upper secondary education in relation to the population from 15 to 17 years old in the same deciles.

This indicator updates the previous indicator #6 to focus on the bottom 40 percent. The previous indicator “Transition rate from lower to upper secondary school for the lowest income quintile” was not part of the official statistics

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Baseline (2012-13 school year): 61.8% End of Program (2014-15 school year): 64%

𝑇𝑁𝑀𝑆4𝐷 =𝑃𝐴𝑀𝑆

𝑃𝑇𝑂𝑇4 𝐷15−17 ∗ 100

𝑇𝑁𝑀𝑆4𝐷 = Gross enrolment rate in Upper Secondary Education for students from households in the first four deciles of income per capita. 𝑃𝐴𝑀𝑆 = Number of people from households in the first four deciles of income per capita and that attend Upper Secondary Education. 𝑃𝑇𝑂𝑇4 𝐷15−17 = Total of 15 to 17 years old form households in the first four deciles of income per capita.

calculated by SEP. In contrast, this indicator is part of SEP’s official outcome indicators and is based on INEGI (Encuesta Nacional de Ingresos y Gastos de los Hogares, ENIGH) which is collected every two years. Actions such as the consolidation and constant refinement of SEP’s scholarship program are expected to contribute to the improvement of the gross enrollment rate of students from the first four deciles of income per capita by providing economic support to students that otherwise will not be able to enroll in EMS.

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ANNEX 3: IMF LETTER OF ASSESSMENT

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ANNEX 4: SECTORAL BACKGROUND AND DESCRIPTION OF RIEMS

1. EMS in Mexico is highly diverse and fragmented. Students enter EMS at age 15 after having basic education (nine years of primary and lower secondary school), and approximately 80 percent of the students in EMS are between 15 and 17 years old. Schools are administered by four types of providers: a) federal, b) state, c) publicly-financed autonomous universities, and d) private (with authorization from a public system, typically an autonomous university). These providers (called “sistemas”) are divided into different systems (called “sub-sistemas”), which have the authority to grant diplomas. There are a total of 200 to 300 systems, depending on how they are counted. The Federal Government serves 26 percent of the EMS student population through four major systems, typically in cooperation with the states. Each of the 31 states operates at least one system, accounting for 43.8 percent of enrollment. In addition, 27 autonomous universities operate upper education systems that account for 12.5 percent of enrollment. There is no national teacher union for EMS and most systems have at least one union. The course of study ranges from two to five years, although around 90 percent of students are in a three-year program.

2. EMS offers three types of degree programs, focused on academic and work-related schools. These programs are:

• General Upper Secondary was founded in the 19th century to prepare students for higher education. Most of the autonomous universities and private providers offer this type of education exclusively and it is also offered by both the state and federal governments. Around 60 percent of students are in this type of program.

• Technological Upper Secondary emerged in the 1930s to prepare students as technicians in industry, fishing, agriculture, and forestry, as well as for higher education. It is offered primarily by the federal and state systems, covering around 30 percent of students.

• Technical Professional Upper Secondary was created in the 1970s and consists of technical and vocational training in modern urban sectors (for example, tourism, systems, accounting, health, and electronics). While graduates are expected to enter the labor market, students can also validate their studies to enter tertiary education. The Colegio Nacional de Educación Profesional Técnica (CONALEP), a mixed federal-state system, is the primary provider, with about 10 percent of students.

3. Both technological and technical professional education are organized around different work-related fields, each with a different curricula and set of graduation standards.

4. While enrollment rates in EMS are high, graduation rates remain low. At present, most students successfully complete basic education and an estimated 90 percent of lower secondary students continue to EMS. Those that don’t successfully transition are disproportionately from the lowest quintile. However, despite overall high enrollment, the dropout rate at the EMS level is high, as is shown in Figure A4.1. Only about 60 percent of students who enroll in EMS graduate from a complete EMS program. In 2006, according to the National Education Evaluation Institution (Instituto Nacional para la Evaluación de la Educación, INEE), 21 percent of youth between 15 and 17 years old were neither working nor studying, a group known as the NiNis, which has become a concern to policymakers that

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focus on crime and social disorder. EMS is a major bottleneck in the education system that is limiting the number of skilled workers available to the Mexican economy.

Figure A4.1: Enrollment Rate by Grade, Basic and Upper Secondary Education

5. Students in EMS have traditionally faced several key challenges: (i) low flexibility; (ii) poor quality and relevance; and (iii) high opportunity cost.25

6. Low flexibility. Prior to the introduction of the Integral Upper Secondary Education Reform (Reforma Integral de la Educación Media Superior, RIEMS), there was no overarching framework for EMS. Although the focus of many programs and systems were similar, each program and system had its own approach and curriculum, which were often incompatible. Therefore in practice, there was little possibility for students to transfer among systems without starting over. Even changing programs within the same system was often complicated. This lack of flexibility contributes to the inefficiency of EMS, resulting in a high level of school dropout since it requires students to stay in programs that are sometimes neither interesting nor appropriate for them.

7. Poor quality and relevance. There is widespread concern that EMS does not systematically produce graduates that are well prepared for further studies or for the labor market. With no overall body evaluating and accrediting schools against common standards, virtually all schools that offer EMS have relied on disarticulated curricula that have usually been teacher-centered, out-of-date, theoretical, and focused on memorization. While 70

25 SEDESOL (2008) “Oportunidades: Un Programa de Resultados:” Encuesta Nacional de la Juventud (2005); Casauban, Marcelo, Mario Carrillo and José Cerón (2009) “La Política de Desarrollo a Favor de la Educación: El Caso del Programa Prepa Si,” (Galilei-Universidad de Puebla).

95.5% 97.1%

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percent of EMS teachers are university graduates, there is little uniformity in their training and few have received any formal training in pedagogy. As a result, student achievement has been low; for example, in 2013, 63.7 percent of students had scores at the insufficient or basic level in mathematics on ENLACE.26 These trends are also confirmed by the international assessment (Program for International Student Assessments, PISA) which ranks Mexico among the lowest performing OECD countries.27 Students’ lack of interest in EMS due to their concerns about its quality is estimated to account for almost 42 percent of the dropout rate. The unemployment rate is high for recent graduates, which suggests that EMS has not been responsive to labor market needs.

8. High opportunity cost. An important reason for dropping out of EMS is the foregone income for the duration of studies at this level. EMS students are usually between 15 and 18 years old and, having completed basic education, are considered capable of working to support themselves and their families. Two factors contribute to this phenomenon. First, school dropouts (and their families) tend to underestimate the returns to EMS. Second, not all poor students qualify for income support programs like Oportunidades, and must therefore quit school to work in poorly paid jobs that require low skills, often in the informal sector. In addition, there are often significant direct costs of attending EMS. While all public providers are nominally free, many charge significantly for registration and materials. Consequently, while the overall transition rate to EMS from lower secondary education was about 90 percent in 2008, it was only 57 percent for the lowest quintile of the population. Dropout rates in EMS are also highest among students in the lowest quintile, with only 47 percent completing EMS.

9. To address these shortcomings, and in an effort to make EMS more relevant to the labor market, the Government introduced the RIEMS in 2007. The reform establishes a National Secondary Education System (Sistema Nacional de Bachillerato, SNB) that brings coherence to EMS among the four different types of providers (federal, state, autonomous university, and private). Figure A4.2 shows the main elements of the reform: a) a Competency-Based Curriculum (CBC), which moves teaching away from the memorization of facts; b) Coordination and Regulation, which sets up common bodies to guide a diverse EMS system; c) Certification, which acknowledges the adoption of the reform by systems, schools, and students; d) New Tools and Institutions that support capacity building and monitoring and evaluation; and e) Mentoring and Student Welfare, aimed at ensuring equity.28

26 National Evaluation of Academic Achievement in Schools (Evaluación Nacional del Logro Académico en Centros Escolares) 27 In 2009, Mexico ranked 34th out of 34 OECD countries that participated. 28 The 2007 Accord number 442 is the cornerstone of RIEMS. There have been several other Accords. The most important of these are Accords numbers 444 (common curriculum framework), 445 (educational options), 447 (teacher profile), 449 (school director profile), 480 (entry into SNB), 484 (governing committee for the reform), 486 (student competencies), and 488 (amendments). These accords can be found at: http://www.dof.gob.mx/. A number of parallel programs frame the “Mentoring and Student Welfare” element of RIEMS.

64

Figure A4.2: Main elements of the Upper Secondary Reform

RIEMS

Competency-based

Curriculum

Coordination and

Regulation

Certification New Tools

and Institutions

Mentoring and

Student Welfare

Teacher training (PROFORDEMS)

Director training (PROFORDIR)

Evaluation System

SIGUELE (overarching program for students at risk) National Academic

Tutoring system (SINATA)

Career Counseling Afterschool youth

development program (CONSTRUYE-T)

Early warning system for vulnerable

Common Curriculum Specialized Tracks

CONAEDU (multi-stakeholder body) Coordination and

regulation of federal, state, university and private providers and their systems

Definition and consolidation of programs

School accreditation (COPEEMS)

Student certification

Objective: Strengthen EMS for labor market responsiveness

Focus: • Improving Flexibility (transferability of students among EMS systems and subsystems)

• Enhancing Quality

65

ANNEX 5: COUNTRY AT A GLANCE

66

67

Citlaltépetl (5,747 m) Citlaltépetl (5,747 m)

Si e r r a

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S ierra Madre del Sur

Si e

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CAMPECHECAMPECHE

CHIAPASCHIAPAS

TABASCOTABASCO

OAXACAOAXACA

GUERREROGUERRERO

COLIMACOLIMA

JALISCOJALISCO

NAYARITNAYARIT

ZACATECASZACATECAS

TAMAULIPASTAMAULIPAS

NUEVONUEVOLEONLEON

C O A H U I L AC O A H U I L A

C H I H U A H U AC H I H U A H U ASONORASONORA

D U R A N G OD U R A N G O

SAN LUISSAN LUISPOTOSIPOTOSI

MICHOACANMICHOACAN PUEBLAPUEBLA

VERACRUZVERACRUZ YUCATANYUCATAN

QUINTANAQUINTANAROOROO

S INA

LOA

S I NA

LOA

MazatlánMazatlán

TorreónTorreónMatamorosMatamoros

LaredoLaredo

OjinagaOjinaga

Los MochisLos Mochis

NavojoaNavojoa

NogalesNogalesSanSan

FelipeFelipe

LoretoLoreto

SonoitaSonoita

AguaAguaPrietaPrieta

GuaymasGuaymas

TehuantepecTehuantepec

FronteraFrontera

VillahermosaVillahermosa

TuxtlaTuxtlaGutierrezGutierrez

OaxacaOaxaca

ChilpancingoChilpancingo

ColimaColima

GuadalajaraGuadalajara

TepicTepic

DurangoDurango

SaltílloSaltíllo

ChihuahuaChihuahua

CuliacánCuliacán

HermosilloHermosillo

MexicaliMexicali

GuanajuatoGuanajuato

PachucaPachuca

AguascalientesAguascalientes

QuerétaroQuerétaro

MoreliaMoreliaTolucaToluca

CuernavacaCuernavaca PueblaPuebla

TlaxcalaTlaxcala

JalapaJalapa

San LuisSan LuisPotosíPotosí

CiudadCiudadVictóriaVictória

ZacatecasZacatecas

MonterreyMonterrey

MEXICOMEXICOCITYCITY

Yaqui

Rio Bravo

Fuerte

Salado

Lerma

Balsas

Conchos

BAJABAJACALIFORNIACALIFORNIA

BAJABAJACALIFORNIACALIFORNIA

SURSUR

MEXICOMEXICO

MORELOSMORELOS

DISTRITO FEDERALDISTRITO FEDERAL

HIDALGOHIDALGOGUANAJUATOGUANAJUATO

AGUASCALIENTESAGUASCALIENTES

TLAXCALATLAXCALA

QUERÉTAROQUERÉTARO

Usuummacinta Rio Grande

GUATEMALAGUATEMALATapachula

PuertoEscondido

Acapulco

Puerto Vallarta

Mazatlán

TorreónMatamoros

Laredo

Ojinaga

Los Mochis

Navojoa

Nogales

Ensanada

Tijuana

SanFelipe

SantaRosalia

Loreto

Cabo San Lucas

Sonoita

AguaPrieta

Ciudad Juárez

Guaymas

Veracruz

Tampico

Tehuantepec

Cozumel

Cancun

Frontera

Chetumal

Merida

Villahermosa

Campeche

TuxtlaGutierrez

Oaxaca

Chilpancingo

Colima

Guadalajara

Tepic

Durango

Saltíllo

Chihuahua

Culiacán

Hermosillo

Mexicali

La Paz

Guanajuato

Pachuca

Aguascalientes

Querétaro

MoreliaToluca

Cuernavaca Puebla

Tlaxcala

Jalapa

San LuisPotosí

CiudadVictória

Zacatecas

Monterrey

MEXICOCITY

CAMPECHE

CHIAPAS

TABASCO

OAXACA

GUERRERO

COLIMA

JALISCO

NAYARIT

ZACATECAS

TAMAULIPAS

NUEVOLEON

C O A H U I L A

C H I H U A H U A

BAJACALIFORNIA

BAJACALIFORNIA

SUR

SONORA

D U R A N G O

SAN LUISPOTOSI

MICHOACAN

MEXICO

MORELOS

DISTRITO FEDERAL

PUEBLA

HIDALGOVERACRUZ

GUANAJUATO

AGUASCALIENTES

TLAXCALA

YUCATAN

QUINTANAROO

S INA

LOA

QUERÉTARO

UNITED STATES OF AMERICA

GUATEMALA

BELIZE

HONDURAS

ELSALVADOR

Yaqui

Rio Grande

Rio Bravo

Fuerte

Salado

Lerma

Balsas

Usumacinta

Conchos

PACIFICOCEAN

Gulf of Mexico

Bay of Campeche

Gulf ofTehuantepec

Gulf of

Honduras

Gu

l f of C

al i f o

r ni a

To Los Angeles

To Gila Bend

To Albuquerque

To Alamogordo

To Midland

To San Antonio

To San Antonio

To Houston

To San Salvador

Si e r r a

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c c i d e n t a l

S ierra Madre del Sur

Si e

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Citlaltépetl (5,747 m)

115°W

30°N30°N

25°N

15°N

25°N

20°N

15°N

110°W

110°W

105°W 100°W 95°W 90°W

105°W 100°W 95°W

85°W

MEXICO

This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other informationshown on this map do not imply, on the part of The World BankGroup, any judgment on the legal status of any territory, or anyendorsement or acceptance of such boundaries.

0 100 200

0 50 100 150 200 Miles

300 Kilometers IBRD 33447R

NO

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MEXICOSELECTED CITIES AND TOWNS

STATE CAPITALS

NATIONAL CAPITAL

RIVERS

MAIN ROADS

RAILROADS

STATE BOUNDARIES

INTERNATIONAL BOUNDARIES