Mexico’s Outlook Could Remain Stable Until 2026: Fitch Ratings

Credit rating agency Fitch Ratings is likely to keep Mexico’s government debt rating unchanged for the remainder of President Andrés Manuel López Obrador’s six-year term, said Carlos Morales, Director Latin America Sovereigns, Fitch Ratings.

“The outlook is Stable, and it is a projection of 12-24 months. When we rate a stable outlook, it means that there is no major risk, a high probability of a rating to improve or worsen. However, if there is a big change, enough to move our base scenario, we could change the rating,” said Morales during the Fitch on México 2022 event.

Although Fitch reviews Mexico’s rating every six months, the “appetite” to modify it is low, added Morales. The main aspects that could worsen Mexico’s rating would be an increase in debt as a percentage of GDP, deterioration in governance conditions and a weakening in the consistency and credibility of the macroeconomic policy framework, according to the agency.

On the other hand, the main aspects that could lead to an improvement of the rating would be an increase in the country’s growth projection, public policies that increase tax collection and reduce risks regarding PEMEX and improvement in governance indicators. “Financial risks are increasing. For example, pension spending has increased in the last decade and income has remained stable as a percentage of GDP. With this formula, the government will have to do something,” said Morales.

Fitch Ratings affirmed Mexico’s BBB- rating on May 17, 2022 with a stable outlook. The country’s rating is supported by “a prudent macroeconomic policy framework, stable and robust external finances and government debt projected to remain stable at levels below the BBB median.”

Standard & Poor and Moody’s, the other two major credit rating agencies, differed in their ratings for Mexico. While Standard & Poor’s rating for Mexico stands at BBB with a negative outlook, the latter was last set at Baa1 with a negative outlook.

Mexican Corporates Face Challenging Investment Environment

Mexican corporates have recovered from the 2020 decline due to the pandemic and have even emerged in better shape in some cases, wrote for MBN Alberto Moreno, Senior Director, Fitch Ratings. However, “Mexican companies continue to face a difficult business environment that has become gloomier in recent years. Fitch revised downward its forecast for Mexico’s GDP growth in 2022 to 2.0 percent from 2.8 percent. The main factors behind this assumption are higher inflation, supply chain disruptions and increased political and regulatory risks.”