Inflation threatens Mexican infrastructure budgets

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According to an expert, budgets for major infrastructure projects in Mexico could soon explode as construction costs rise faster than consumer prices.

“The national producer price index is around 9% and when you include the oil issue it goes up to over 10%. In fact, industries are facing an increase in production costs, which means the construction costs of the projects could go beyond budget,” according to Moody’s analyst René Robles told BNamericas.

“[This] The risk needs to be assessed as the projects are a bit more advanced and to be able to visualize what happened with some cost overruns,” he added.

Rising interest rates will make financing more expensive, which is an additional problem.

“Access to finance is important because these are capital-intensive investments, like all infrastructure, so access is required,” Robles said.

In such an environment, new investment vehicles could facilitate access to financing. Robles said mechanisms being developed for private pension fund managers (Afores) to invest in infrastructure are good examples.

Other mechanisms such as capital development certificates (CKDs) or infrastructure funds called Fibras linked to private equity could also be helpful. “In this case, it is important to find a market with sufficient capacity,” says Robles said

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