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The Mexican federal government has continued its trend of prioritizing subsidies over investments, despite the economic crisis brought about by the covid-19 pandemic.

In the first six months of this year, subsidies and financial transfers totaled 463.5 billion pesos, according to data released by Mexico’s Secretariat of Finance (SHCP).

In contrast, physical investment — which is focused on building, conserving or acquiring capital goods for both direct and indirect public works — totaled 381.6 billion pesos, 81.8 billion pesos less than subsidies.

Examples of the subsidies that the federal government has prioritized include transfers to the Mexican Social Security Institute (IMSS) pension schemes, contributions to the state-owned Federal Electricity Commission (CFE) and pensions for the elderly.

In the first half of this year, the federal government transferred 46.9 billion pesos to the CFE to cover a deficit in tariffs.

These subsidies and transfers have been prioritized by the administration of Mexican President Andrés Manuel López Obrador (AMLO), according to Enrique Díaz Infante, director of financial and social security studies at the Espinosa Yglesias Study Center, because they “ensure great electoral results.”

“This government has the elections as its guiding axis, so I don’t think this trend will be reversed,” said Díaz Infante.

According to Díaz Infante, physical investment in the country remains below the recommended level, which has resulted in stagnant job creation and greater inequality, among others, which has in turn resulted in slow economic growth.

For his part, José Luis Clavellina, director of research at the Center for Economic and Budgetary Research (CIEP), said that the impact of social programs and subsidies is unknown, and that it is better for the government focus on physical investment because it creates infrastructure — such as highways, ports and hospitals — which makes the economy more competitive and productive, and helps in closing the poverty gap.

According to Clavellina, physical investment should, ideally, represent 5 percent of the gross domestic product (GDP) in Mexico.

The Inter-American Development Bank (IDB) has likewise repeatedly warned that the low economic growth in Latin America is the product of fiscal restrictions that the region has faced to increase public investment. According to the IDB, governments in Latin American countries tend to cut public investment, and fail to prioritize it when growth is restored.

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