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AMLO’s Flagship Projects Drive Big Boost in Mexico’s 2024 Budget

(Bloomberg) -- President Andres Manuel Lopez Obrador’s big projects are a driving force behind the Mexican government’s plans to boost spending and widen the budget gap in 2024, consolidating his legacy before the next presidential election.

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Under the Finance Ministry’s budget proposal, spending would increase 4.3% in real terms next year, or 9.3% nominally, to 9 trillion pesos ($512 billion). The fiscal deficit would widen to an estimated 4.9% of gross domestic product, the biggest since 1988 — a reflection of AMLO’s projects such as the Maya Train, the ocean-connecting Tehuantepec Isthmus rail link, social programs and his growing support for Pemex, the highly indebted state oil company.

Read more: Mexico Plans Biggest Budget Gap in 36 Years as AMLO Ends Term

Here are some of the detailed allocations in the budget draft sent to Congress on Friday:

Maya train

Billed as the government’s principal “priority project” for 2024, it’s set to receive 120 billion pesos, bringing the total to 368.5 billion pesos in budget drafts since 2019. But actual spending to date is 515.8 billion pesos according to the Mexican Institute for Competitiveness (IMCO), a think tank that says the train will cost 3.3 times more than originally budgeted. The government says the train will boost tourism and economically benefit “all Mexican regions.”

Pemex

The government envisages a 2024 budget surplus of 145 billion pesos for Pemex to help it meet 2024 debt service obligations that the company estimated at about $11.2 billion in a presentation in June.

The government contribution is subject to a Pemex commitment to maintain a moderate debt, which is now the highest of any oil major, reaching $110.5 billion at the end of June. The Finance Ministry also wants that “as far as possible” the balance of Pemex’s public debt shows a reduction compared to the previous year.

The government also proposed a reduction of 5 percentage points in the company’s profit sharing duty payments to 35%, so the company receives a greater share of oil income.

Mexico’s support will considerably help Pemex to meet its maturities for 2024, Barclays strategist Gabriel Casillas said in a note. The DUC reduction to 35% from 40% could free up about $2.5 billion in cash for the oil company. Combined with the $8.2 billion capital injection, Pemex could receive as much as $10.7 billion in government help, he said.

“It is our take that this budget proposal is supportive to have a swift and smooth transition to the next administration,” Casillas said in the report.

Lopez Obrador’s increased support for Pemex aligns with his nationalist energy policy and preference for fossil fuel over cleaner energy.

Read More: Pemex Gets Billions for Debt Payment in Mexico Draft Budget

Isthmus of Tehuantepec

The corridor for the Isthmus of Tehuantepec, a strip of land that separates the Pacific Ocean and the Gulf of Mexico, would get 21.1 billion pesos in 2024, almost triple the funding level in last year’s spending plan. AMLO’s goal is to reduce travel time between the Pacific and the Gulf of Mexico by 70%, according to the document.

Lopez Obrador views the corridor as an alternative to the saturated Panama Canal, which is dealing with shrinking water levels. AMLO also wants southern Mexico to compete with the north as foreign companies expand operations closer to the US.

Retirement benefits

But the biggest chunk of the priority projects is for public retirement benefits, rising to a proposed 465 billion pesos from an approved 336 billion pesos this year — a 38% increase that’s the biggest in AMLO’s administration since the 2021 budget plan. Increased spending on social programs is a key selling point of his leftist government and an anchor of his popularity.

It could also be a boon for Claudia Sheinbaum, the governing Morena party’s candidate in the June 2 election and a close AMLO ally.

--With assistance from Michael O'Boyle and Amy Stillman.

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