Pragmatism to be the key for infra projects amid Mexico’s fiscal strain

Mexico's incoming government, to be led by president-elect Claudia Sheinbaum, may have greater success in pushing forward with key projects and overcoming significant financial challenges if it leans toward a less political and more pragmatic and technical approach.

"The expectation for Sheinbaum's administration is a more technical focus on infrastructure needs, especially given the concerning budget deficit," Juan Carlos Machorro, a partner at law firm Santamarina + Steta, told BNamericas. “There's also hope that she will collaborate closely with the private sector."

Sheinbaum, set to take office on October 1, inherits compromised finances due to disproportionate spending by her predecessor. According to local economic think tank IMCO, spending in the first half of 2024 resulted in the largest budget deficit for January-June for at least 19 years, totaling more than 744 billion pesos (US$37.5bn), it said in a report.

The new administration will also face significant debt obligations, with over 7 trillion pesos due in the next five years.

However, a more technical approach to infrastructure could help protect national finances by focusing on feasible projects and encouraging private sector involvement, Machorro said.

“The technical approach will help to identify the level of feasibility of projects, and whether the private sector can be relied upon, or if they’re social projects, you can then prioritize the use of public funds, or maybe promote them so that commercial banks finance those projects,” he added. 

Another challenge for Sheinbaum will be navigating the controversial judicial reform currently being processed by congress, which has raised concerns among US and Canadian investors and politicians. 

"I’m not sure [lawmakers] are aware of the destructive effects it will have for business and investment certainty," Machorro warned.

This article was originally published on September 2