Investment in public works will reach its lowest level in more than a decade next year, according to the federal government’s projections in its 2018 budget proposals.
A decline in government revenues, a desire to maintain the current international credit rating and decentralization of infrastructure responsibility have all been cited by experts as reasons for the reduced spending.
But some private-sector interests see the decline in infrastructure spending as a step backward for economic development.
The executive branch proposes capping total investment in public infrastructure in 2018 at 2.5% of Mexico’s Gross Domestic Product (GDP), according to budget documents presented last Friday to Congress.
If approved, the budget would see spending in the sector at its lowest percentage of GDP since 2006 when investment was 2.4%, according to data from the Finance Secretariat.
The “General Criteria of Economic Policy 2018” papers, which set out the spending plans, also indicate that a further reduction to 2.4% of GDP is forecast for 2019.
Total spending would be 577.8 billion pesos (US $32.5 billion), which includes proposals to purchase assets including real estate, land, furniture and equipment as well as public works investment.
The figure represents a 1.36% increase on the total amount that had been approved in this year’s budget although in terms of GDP it is a 0.3% decline.
However, compared to 2013, the first year of President Enrique Peña Nieto’s administration, the spending proposed for next year represents a 21.45% drop. Public spending was cut in both 2015 and 2016 and this year is expected to follow the trend as figures for the first six months of the year show a 22% reduction compared to the same period last year.
Experts are divided over the driving forces behind the cuts.
The president of the Mexican Institute of Financial Executives, Adriana Berrocal, said the government is prioritizing a surplus to reduce risk levels at the expense of investment in key sectors including health, education and infrastructure.
“This year the economic package is restricted by the necessity to demonstrate a control of public finances to the world,” she said.
Mexico currently has a BBB+ credit rating but all three major credit rating agencies downgraded the country’s outlook from stable to negative last year although two of the three revised it to stable in July.
Finance Secretary José Antonio Meade has focused efforts on maintaining the current rating and having a public accounts surplus.
Mariana Campos of public policy think tank México Evalúa cites other factors for the spending decline.
She says there is little incentive for the federal government to invest in public projects in its last year in office but also referred to a 1998 shift which transferred some infrastructure responsibilities from the federal government to states as a factor.
“We haven’t recovered since then,” she claimed.
However, director of the research center Gesoc, Alejandro González, believes that the primary factor behind the spending cuts are falling revenues from the production and sale of petroleum.
Nuevo León industry association Caintra was critical of the spending plans for cutting expenditures in investment, science, innovation and technology while allocating more resources to political parties, describing it as regressive for economic development.
It contrasted what it said would be an 8.5% reduction in real terms in 2018 infrastructure spending against a 58% increase in funds for political parties. That increase is due largely to next year’s presidential election.