Can Mexico finance key infra projects with savings?

Some experts doubt Mexico can finance its top infrastructure projects with the savings it got from reducing public debt and combating corruption, as the government claims.

“To complete the infrastructure works that the government is planning, higher tax revenues are going to be required,” José Luis de la Cruz, director of the industrial development and economic growth institute (IDIC), told BNamericas

De la Cruz added on top of budget cuts, the government collects “fewer tax revenues than planned,” which could potentially reduce public spending in the next four years.   

“These net terms suggest that the government will ultimately have to allocate additional resources, [aside from savings], in order to develop its infrastructure projects,” he said. 

SAVINGS

At his last press conference of the year, President Andrés Manuel López Obrador (AMLO) said the government has accumulated 230bn pesos (US$12.1bn) in savings by combating corruption and implementing austerity policy. 

“With that, we can secure next year’s financing for” the 120bn-peso Maya train, the 100bn-peso Felipe Ángeles international airport (AISL) in Mexico state, the 214bn-peso Tehuantepec isthmus trade corridor, and branches for Banco del Bienestar, he said. 

Since AMLO took office in December 2018, the leftist president has cut federal spending. He even took a 60% pay cut as part of his austerity policy. But verifying how much the government has collected with the fight against corruption “is very complex,” according to de la Cruz, because the resources are “less taxable or less controllable,” even though the government has been transparent with public finances.

Financial intelligence unit UIF has been persecuting crimes related to money laundering, other white-collar crimes, fuel theft and ghost companies, among others. 

PROJECTS

Felipe Ángeles international airport and the isthmus corridor have always been presented as public projects, leaving less expensive works to the private sector. The Maya train, however, was planned to receive public and private financing, but not anymore. 

In early December, the government said it would finance 100% of the 1,452km passenger and freight rail line to avoid public debt. 

“In the beginning, the objective was to obtain resources from the private sector...so the project was meant be attractive enough to get the private sector [on board]," de la Cruz said. 

“Because there is a probability that the private sector does not want to absorb the whole risk of the project or that the project was not going to be self-financing, [the government will use its own resources] derived from local income," he said.

In a previous conference, the government claimed it had secured half of the 120bn pesos needed to complete the Maya train by 2024, and the remainder would come from the collection of fees from tourism.

Under the 2020 federal spending budget, approved in late November, Felipe Ángeles airport received 94bn pesos from defense ministry Sedena, which will carry out the works. It also received 53bn pesos from the communications and transportation ministry (SCT).

Although AMLO referred to key infrastructure works in his last press conference, he did not provide details on how to distribute the savings of 230bn pesos. 

Photo credit: Unsplash