Mexico’s Budget Cuts Infrastructure Investment 15%, a Credit Negative
for Companies
Last Tuesday, Mexico’s (A3 stable) Minister of Finance Luis Videgaray submitted the government’s 2016
budget proposal to Congress. The budget, which outlines spending for the rest of this year and proposes
expenditures for 2016, reduces infrastructure expenditures by 15% in nominal terms versus MXN839 billion
in the proposed 2015 budget (see Exhibit 1), a credit negative for the infrastructure sector.
The overall 2016 budget proposal is 1.5% lower than in 2015 because of decreased oil production, lower oil
prices, and an expectation of rising US interest rates. Oil production has been falling since 2014; the 2016
budget is based on oil production of 2.24 million barrels per day, down from 2.26 million expected in 2015
(see Exhibit 2). The budget’s assumption for the 2016 Mexican oil price is $50 per barrel, down from the
2009-14 average of $71 per barrel.
The 15% cut in 2016 infrastructure investment is significantly higher than the budgeted 0.6% drop in
current expenditures. The main effect of this reduction will be among companies in the construction
industry, including OHL Mexico (unrated), Empresas ICA, S.A.B. de C.V. (B2 negative), Abengoa Mexico, S.A.
de C.V. (B2/Ba1.mx review for downgrade) and IDEAL (Baa3/Aa2.mx stable). The energy industry will also be
affected given that Comision Federal de Electricidad (Baa1/Aaa.mx stable) will decrease investment
spending 15.2% versus last year’s approved budget.
Flagship projects distinguished by their social and economic importance such as the new Mexico City
international airport and the train line between Mexico and Toluca remain in the government’s
infrastructure plan for the next year, which authorizes MXN9.7 billion for the airport and MXN8.2 billion for
the train line. The government expects Congress to approve the budget no later than 15 November 2015
