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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,

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Presentation on theme: "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,"— Presentation transcript:

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 billing show a similar pattern of regressivity

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

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 0%20%40%60%80%100%120%140%160% Gasto p ú blico como proporci ó n del gasto privado de los hogares 10% más pobre 2 3 4 5 6 7 8 9 10% más rico Deciles Primaria SSA Oportunidades Secundaria Preescolar IMSS Salud Procampo Media-Superior Subsidio Eléctrico IMSS Pensiones Jubilados PEMEX Salud IMSS Pensiones Activos ISSSTE Salud Superior ISSSTE Pensiones Jubilados

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


15 International comparisons of the quality of infrastructure for business Pa í s Calidad GlobalPuertosFerrocarrilesElectricidad Argentina3.6 2.74.2 Brasil3. Chile4. Colombia2. M é xico China3. Thailand4. Malaysia5. Philippines2. Indonesia4.24.44.1 Promedio muestra E.U.A. Source: WEF (2004)

16 Road quality improving in Mexico, but still way behind OECD, and behind projected needs for traffic  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 Estado de la red

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

18 Collection efficiency of WSS City / countryCollection/billing Monterrey. Mx98 OECD average95 Asian cities (18) aver.88 Brazil major cities, aver.87 Hermosillo, Mx85 Mexico average city72 Matamoros, Mx45 Mexico small cities20

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 Billion 2003 MXP % GDP 1998641.06 1999641.02 2000691.04 2001681.02 2002841.26 2003831.23

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

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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