The spending cuts announced by President López Obrador to bolster expenditures on social programs and infrastructure projects amid the coronavirus crisis will have a negative impact on almost 20,000 businesses, the vast majority of them small and medium-sized.

López Obrador said last Wednesday that 75% of the federal budget approved for the payment of general services and the purchase of supplies will not be used in 2020, allowing 622.5 billion pesos (US $25.2 billion) to be redirected to infrastructure and welfare spending.

It follows that government suppliers will see their income affected. According to a government registry, 17,132 of 19,440 businesses that provide goods and services to the government – 88% – are micro, small and medium-sized.

The government’s spending cuts will therefore make it even more difficult for them to survive the sharp economic downturn caused by the coronavirus pandemic and the measures implemented to limit its spread.

Violeta Rodríguez del Villar, a researcher at the National Autonomous University who specializes in public finances, told the newspaper La Jornada that redirecting spending to social programs and infrastructure – López Obrador also announced that the salaries of high-ranking officials would be cut by 25% – is “laudable” but warned that more government supported is needed for business.

She said that the economy won’t grow if the government doesn’t widen its support to sectors other than the state-run petroleum industry, which the López Obrador administration continues to prop up via tax breaks and cash injections for the national oil company Pemex.

Government support “has to be considerably more diversified,” Rodríguez said.

Various economists and other financial experts have also been critical of the government’s failure to provide support for businesses as they face the coronavirus-induced economic shock.

The measures outlined by López Obrador last week are “completely insufficient,” said James Salazar, an analyst at CI Banco. “More targeted support measures are needed considering that there are sectors that are very badly hit.”

With the government providing scant fiscal policy support for sectors that have seen their revenue collapse, the economy is expected to contract sharply in 2020, with several financial institutions and international organizations forecasting downturns in the range of 5% to 10%.

Source: La Jornada (sp)