Why isn’t there more public investment?

By Humberto Armenta

Early last year we were claiming the need to speed and promote public
investment due to the existing lack of available private capital due to the
international financial crisis. Government resources had become the main,
and almost only, promoter of the infrastructure construction field and thus
the importance of having this financial support flowing. However, at the
close of the first four months of the year, public resources were not reaching
construction companies.

According to the Spending Budget of the Federation, PEF, budgeted physical

investment in 2009 grew to 534 billion pesos. Out of this total, almost 50%
corresponds to investment projects to be carried out by PEMEX (227 billion
pesos) and 11% (61 billion pesos) to infrastructure work to be carried out by
the Ministry of Transport and Communications (SCT). These two
government agencies concentrate almost 300 billion pesos of the budget.

Budgeted Physical Investment

in the Public Sector in 2009
(million pesos)

Sector 2009 Approved Budget

Energy 267,050
 SENER 21
 Pemex 227,498
 CFE 33,163
 Luz y Fuerza 6,368
Communications and Transport 61,005
Education 18,039
Health 15,193
Water and Environment 30,248
Tourism 1,119
Others 141,622
TOTAL 534,276

Source: Gerencia de Economía y Financiamiento, Dirección Técnica de la

CMIC
With data from the Finance Ministry

On an average, total spending of the budget during the first four months of
the year was 138.840 billion pesos, that is 26% of the budget. If spending
was done on a proportionate basis and we could divide it into periods of four
months, the average should be 33%, so the above numbers are 7 percent
points below what was expected, that is almost 40 billion less than
forecasted.

It should be highlighted that the Ministry of Communications and Transport,

SCT, reported spending 10.647 billion pesos of its budgeted physical
investment, which represents 17.1% of this year’s budget and 51.4% of the
budget for the first four months, or 20.333 billion pesos.

Ministry of Communications and Transport

Progress in budget spending during the first four months of 2009

1. Budgeted physical investment assigned to the SCT for this year is

61.005 billion pesos.

2. Taking as reference the 12 months of the year and in order to verify

progress made, 33% of the budget should be spent in each of the
four-month terms, for a total of 20.333 million pesos for each one.

3. For this four-month period, the Ministry of Finance (SHCP) reported

SCT spending 10.647 billion pesos in physical investments which is
17.1% of the total budget for the year and 51.4% of the 20.333 billion
pesos assigned to the first four months of the period.

Despite the fact that in the past few weeks important progress has been
made in the regulation to speed up the assignment of public resources such
as the Public Works Law, money is still not flowing towards construction
companies. The budget has not been assigned at the speed it should and
this is also contributing to the delay of projects.

The government’s tax revenues have been falling due to the recession, as
has been the case in many other countries such as Brazil and Spain which
are already contemplating a reduction in their budgets. However, in the
above cases, they have announced that they will not allow these measures
to affect infrastructure programs, as cutting back on this might generate an
even larger damage to their economies in the mid-term since this is a key
sector in the development of their countries and to maintain their
competitiveness at international levels.

Along this same line, it is necessary that Mexico’s government continues to

bet on infrastructure as a release valve to come out of the crisis. Even if
fiscal income decreases, we have to look for ways to maintain the resources
that were destined to infrastructure and at the contemplated rate of
investment, because it is the only alternative to becoming stronger and
come out of the crisis. Delaying or reducing investments will only serve to
make coming out of the tunnel even more difficult. The development of
infrastructure will pave the way for our mid-term growth and that is why
maximum efforts should be made to maintain public investment at the
foreseen levels and speed.

Mexico
July 28, 2009