Fitch Keeps Mexico at BBB-, Cites PEMEX, Growth Risks

Fitch Ratings maintains Mexico’s sovereign credit rating at BBB- with a stable outlook, anchored by flexible exchange rates and favorable debt composition, but warns that structural economic growth below 1% and persistent financial transfers to state oil firm PEMEX threaten investment-grade status. Ongoing fiscal deficits, declining tax revenues, and annual USMCA reviews continue to limit foreign direct investment despite nearshoring export gains. This credit environment elevates borrowing costs and capital allocation risks for corporate issuers, manufacturing supply chains, financial institutions, and public infrastructure planners across Mexico.

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Mexico maintains the structural characteristics of an investment-grade sovereign borrower despite weak economic growth, trade uncertainty with the United States, and fiscal pressures, according to credit rating agency Fitch Ratings. However, the agency warned that Mexico's BBB- rating and stable outlook should not be taken for granted as debt levels rise and government support for state-owned oil company PEMEX continues to weigh on public accounts.

Speaking at the Fitch On México conference in Mexico City, Shelly Shetty, Global Head of Sovereign Risk for the Americas, Fitch Ratings, emphasized that Mexico’s creditworthiness is supported by solid macroeconomic fundamentals, including a flexible exchange rate regime, a credible central bank, deep domestic financial markets, and tight economic integration with the United States. "We still consider Mexico to have characteristics of an investment-grade issuer," Shetty said, while stressing that public debt trajectories and fiscal consolidation will determine whether the sovereign retains its rating.

The assessment comes as Mexico faces broader scrutiny from international credit agencies, following a downgrade by Moody's Ratings to Baa3 and a negative outlook revision by S&P Global Ratings. Fitch identified weak GDP growth as Mexico's primary sovereign risk factor. The rating agency forecasts Mexico's economy will grow approximately 1% this year, down from a previous 1.7% forecast, following an estimated 0.5% expansion last year. This growth rate places Mexico behind Latin American averages, emerging market peers, and regional economies such as Brazil.

"No matter how you compare it, Mexico is growing below its peers," Shetty said, noting that the country risks remaining trapped in a period of structurally low growth after experiencing one of the weakest post-pandemic economic recoveries in the region. Fitch attributed the slowdown to investment trends. Public investment lost momentum following the completion of flagship infrastructure projects from the previous presidential administration, while private investment has not expanded enough to offset the decline.

Public Spending, PEMEX Support Weigh on Credit Rating

Investment dynamics reveal structural imbalances across the Mexican economy. Public investment accounts for approximately 3% of Mexico’s GDP, whereas private investment accounts for nearly 19% of GDP, bringing total investment to around 22% of GDP. Moody's Analytics and Fitch both observe that accelerated public spending primarily benefits private construction contractors executing government projects rather than generating broad-based capital accumulation. Shetty added that domestic factors, including judicial reform, infrastructure deficits, energy access, water availability, rule of law, and legal certainty, continue to influence business confidence alongside trade policy uncertainties.

PEMEX's financial distress represents a direct drag on Mexico’s sovereign credit profile. "According to our methodology, the support provided by the government to PEMEX, not only now but also that which we anticipate it will continue to provide in coming years, subtracts a full notch from Mexico's credit rating," Shetty stated in an interview with El Economista. While recent budget allocations have made financial transfers to PEMEX more transparent than past ad-hoc bailouts, Fitch noted that the company has not implemented structural operational changes to reduce its dependency on public funds.

Mixed Outlook for Exports

On international trade and nearshoring, Fitch acknowledged that realignments in global supply chains have strengthened Mexico’s export sector. Mexico maintains a competitive advantage with an effective tariff rate near 3.5%, significantly lower than tariffs faced by Chinese exports, enabling Mexico to capture US import market share. However, this trade dynamism has not translated into increased Foreign Direct Investment (FDI). Foreign direct investment in Mexico continues to hover around 2.5% of GDP, matching pre-nearshoring averages and remaining below the 2.9% average recorded between 2015 and 2019.

Fitch noted that annual reviews under the United States-Mexico-Canada Agreement (USMCA) introduce added friction for long-term manufacturing operations. "Factories are built with 20- or 30-year horizons in mind, and trade agreements exist precisely to provide certainty about the rules of the game," Shetty said.

Federal Budget, Sovereign Debt Remain Key

Fiscal consolidation represents the critical test for Mexico’s credit outlook. While the federal government reduced its budget deficit following a sharp widening in 2024 — executing a record MX$418 billion (US$24.03 billion) underspend in the first five months of 2026 — future deficit reduction faces headwinds from declining oil revenues, slower tax revenue growth, and expanding social expenditure. With administrative tax enforcement gains nearing exhaustion, Fitch recommended that Mexico initiate discussions on a structural tax reform to broaden the tax base and rebuild fiscal buffers. "We live in a world where there will be successive crises, and it is necessary to build fiscal space to face them," Shetty noted.

Regarding sovereign debt metrics, Fitch estimates Mexico's general government debt at 55% of GDP, remaining below the 60% median average of its BBB-rated peer group, which includes countries such as India, Indonesia, Uruguay, and Thailand. Furthermore, Mexico retains a favorable debt composition, with foreign-currency debt accounting for less than 20% of total public debt, compared to a 30% to 35% median among rating peers, mitigating exchange rate risks. Fitch concluded that accelerating GDP growth, stabilizing public debt, and strengthening fiscal revenue could pave the way for a sovereign upgrade, whereas accelerating debt accumulation or unmitigated fiscal deterioration would erode credit strengths.