Mexico’s cautious macroeconomic policy has stabilized the country’s economy after the pandemic. However, major liabilities regarding the country’s biggest companies and uncertainty for investors in different sectors forced S&P to maintain Mexico’s long-term currency ‘BBB’ rating.
“Mexico is poised to close 2021 with a 5.8 percent rebound in gross domestic product (GDP), leaving a still sizable output gap emerging from the pandemic-induced recession in an economy that has had a history of low GDP growth. As President Andrés Manuel López Obrador enters the second half of his six-year term, we believe that he will continue with cautious macroeconomic management that has limited the increase in debts and benefits, with a net general government debt that it will remain stable at around 46 percent of GDP for the next three years. We affirmed our long-term sovereign foreign currency ratings of ‘BBB’ and Mexico’s ‘BBB+’ local currency,” states S&P’s press release.
PEMEX and CFE’s fiscal challenges represent major liabilities for the Mexican government, as S&P highlights that future downgrades for the country are uncertain due to the weak growth of these two giants. Long-term ratings remain negative, with short-term global scale ratings of ‘A-2’ and transfer and convertibility risk assessment (T&C) remaining at ‘A.’
S&P also highlighted that Mexico’s cautious macroeconomic management and better dialogue with Canada and the US regarding strengthening the supply chain give confidence to investors. However, the reversal of policies, harsh renegotiation of contracts in the energy sector and a weakening of Mexico’s Central Bank (Banxico) could potentially undermine investor confidence.
“On the contrary, effective economic management that improves investor confidence and encourages private investment could mitigate the structural weakness of GDP growth expectations, which in turn would help strengthen public finances,” reads the S&P’s report. S&P’s expectations show a cautious management of the economy for the rest of president López Obrador’s term, as the country seeks economic stability.
The Ministry of Finance and Public Credit (SHCP) highlighted the most important aspects of the S&P report in a press release, while stating that: “The ratifications of all rating agencies guarantee favorable access for the public and private sectors to international and national financial markets.”