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Infrastructure and other PERs in Mexico

Infrastructure and other PERs in Mexico. S. Webb, IEG and J. Halpern, EWD Public Finance Analysis and Management Core Course, PREM Learning Week, May 1-5, 2006. Overview. Programmatic approach public finance concerns including infrastructure 2 state PERs (Guanajuato and Veracruz)

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Infrastructure and other PERs in Mexico

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  1. Infrastructure and other PERs in Mexico S. Webb, IEG and J. Halpern, EWD Public Finance Analysis and Management Core Course, PREM Learning Week, May 1-5, 2006

  2. Overview • Programmatic approach • public finance concerns including infrastructure • 2 state PERs (Guanajuato and Veracruz) • PER – distribution • Infrastructure PER • Water PER • Mexico Poverty III – decentralized services for poor, including municipal infrastructure • Permitted building knowledge, • trust of clients gradually • continuity of policy dialogue • Shifted principal client and champion from line ministries to Finance • Heavy use of local consultants • econ/fin/tech experts, not research assistants) • enhanced credibility and continuity of effort

  3. Mexico PER • client demand for PER focused on distribution • Difficulties in addressing infrastructure sectors • WSS, electricity • Not: urban roads, highways,, telecoms) • BIA in electricity • Methods—HH survey and electric co billing • , results and recommendations • Benefit of looking across sectors at distributional concerns • energy subsidy is pro-rich • contrast with health, education, and social protection programs

  4. Most programs are regressive in absolute terms…

  5. Calculation methods • Household surveys give data on how many households at each income level access most public services • Correlation of rate of access with level of income gives correlation coefficient • Positive coefficient means more goes to the rich (regressive in absolute terms) • Negative coefficient means a greater share to the poor • Household Electricity subsidy • Assumes the standard rates for all (the HH survey only has amount spent, not volume) • Data from the electricity company billingshow a similar pattern of regressivity

  6. …but the progressive programs get about half of the resources whose distribution could be measured. Prog. más regresivos Prog. más progresivos

  7. Nature of progressive programs • Targeted to the poor: • Oportunidades • ProCampo • Open to all, but more used by the poor • Basic education • Basic Health • Regressive – requires money to access more • Electricity subsidy

  8. Public spending is very redistributive, if tax payments are about proportional to income: households in the poorest access public services costing 150% of their own income 10% más pobre Primaria 2 SSA 3 Oportunidades Secundaria 4 Preescolar IMSS Salud 5 Procampo Deciles Media-Superior 6 Subsidio Eléctrico IMSS Pensiones Jubilados 7 PEMEX Salud 8 IMSS Pensiones Activos ISSSTE Salud 9 Superior ISSSTE Pensiones Jubilados 10% más rico 0% 20% 40% 60% 80% 100% 120% 140% 160% Gasto público como proporción del gasto privado de los hogares

  9. Critical assumptions • Assumes that value equals cost • Assumes that value (quality) are the same to rich and poor  further sector studies needed

  10. Municipal Social Infrastructure (FAIS) transfer and Social protection transfer go mostly to poor states

  11. Electricity subsidies for agriculture go mainly to the richest (and driest) states

  12. Infrastructure PER • Client demand • built on questions raised by clients in review of distributional PER • concern with program efficacy, not just distributional outcome • What is point of progressively distributing a poorly run program? • Scope- multiple sectors, • sequence of analysis (sector performance, fund flows (magnitude/purpose) • planning and budgeting, cost projections, government credit guarantees/enhancement, prioritization and sequencing of recommendations) • Full sectoral diagnostic as well as cross sectoral analysis and recommendations (not just editorial exercise). • Tradeoffs in relative emphasis • comprehensive sectoral vs cross-sectoral topics • benefit to focusing on cross-sectoral issues.

  13. Three Methods – • 1-benefit incidence analysis (from PER) • 2-investment cost projections under alternative policy scenarios Estimation of spending needs in each sector -- converging to conclusion • 3-differential impact of build-up of government credit enhancement programs-leading to distorted (and in some cases dysfunctional) development of the sectors

  14. INTERNATIONAL COMPARISONS TO PLACE COUNTRY PERFORMANCE IN PERSPECTIVE • Multi-sector • Roads • ELECTRICITY Distribution • BENCHMARKING-WSS • – international and in country

  15. International comparisons of the quality of infrastructure for business Source: WEF (2004)

  16. Road quality improving in Mexico, but still way behind OECD, and behind projected needs for traffic Estado de la red • El servicio de transporte carretero tuvo grandes mejoras tras la desregulación iniciada en 1989 … pero • La porción de la red en mal estado es aún significativa (40%); se concentra en caminos secundarios y rurales • No está consolidada la información de estado de las redes subnacionales • Parte de la red aún presenta estándares inadecuados (ancho de carril, pendiente, etc.), incluido un 30% de los corredores clave. • La pavimentación es relativamente baja (un tercio; es dos tercios en países desarrollados) Red Pavimentada - %b

  17. Electricity efficiency – distribution losses Pérdidas en Distribución (%)

  18. Collection efficiency of WSS

  19. COST/INVESTMENT PROJECION MODELS, feedback with growth • México invests 1%-1.2% of GDP in infrastructure • This would suffice to maintain current path of improvement if and only if it were spent more efficiently, because depreciation grows • To reach the level of S Korea or compete with China, Mexico would need to invest 2.5 - 3% of GDP

  20. Electricity Investment Millones de Pesos 2004 Inversión total en electricidad (%PIB) 2.79% 3.00% 2.51% 2.50% 2.00% 1.50% 0.77% 1.00% 0.71% 0.50% 0.00% México (2003) Argentina (2002) Chile (2001) Colombia (2001)

  21. MEXICO POLICY & CREDIT SUPPORT FOR PSP/PRIVATE OPERATORS/INVESTORS • INTERNATIONAL COMPARISON- • Shows that Mexico is not that especially successful in attracting infrastructure • Government credit enhancement has biased investment toward greenfield projects • Un balanced sectoral development—to little at the distribution end, where the private sector has the greatest advantages • RESULT = COSTLY AND POORER QUALITY SERVICE

  22. México has made limited use of Public-Private Investment partnerships • Bajo PPI comparado con sus pares • A pesar de la elevada calificación de crédito soberano • Y un amplio (y creciente) mercado doméstico de capitales • Limitada a greenfield/off-take • Bajo impacto en eficicencia

  23. Water PER • Mexico’s Water resources as well as fiscal resources • Emphasized conservation as well as traditional PER issues • Key issue is how to bring the right mix of incentives to the decisions on both the water conservation and the fiscal issues. • River basins seem to be the right scale for decision power • How to make the requisite institutional reforms within the present legal and political contexts • Recommendations for implementation of new water law – calling for decentralization

  24. Mexico- CONAGUA revenue and spending by cuenca

  25. Dissemination • shift emphasis away from producing long gray cover “reports” • vehicle for interacting with federal and subnational policy makers and practitioners

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