Moody’s Flags Mexico Credit Risk on Highest Deficits in 20 Years

Mexico’s sovereign credit outlook remains Negative as rising fiscal deficits challenge the country’s record of stability, Moody’s Ratings said.

Renzo Merino, sovereign analyst for Mexico, Moody’s, noted the shift began in 2024 when the government proposed a fiscal deficit of 5.9% of GDP, the highest in two decades. For years, Mexico had maintained moderate deficits even during external shocks.

The outgoing administration projected a consolidation that would reduce the deficit to 3.9% of GDP in 2025, but Moody’s estimates it will reach 4.3% and is unlikely to fall below 3% before 2028.

“Historically, Mexico had a kind of dichotomy, where institutional weakness was offset by the strength of its fiscal framework. But everything changed starting in 2024,” Merino said, warning that further fiscal deterioration could trigger a downgrade.

Mexico’s sovereign rating currently stands at Baa2 with a Negative outlook, two notches above speculative grade. A downgrade would bring the country close to losing investment-grade status.

Merino also highlighted institutional challenges, including corruption, rule of law, and policy implementation, which historically had been balanced by fiscal discipline.

Despite fiscal pressures, Moody’s cited Mexico’s monetary stability as a strength. The Bank of Mexico’s independence ensures inflation shocks can be managed to preserve financial stability.

Moody’s also pointed to the country’s high interest burden. Sovereigns rated Baa spend an average of 9% of revenue on interest, but Mexico allocates roughly 17%, placing it alongside India and Panama. Arianne Ortiz Bollin, Moody’s senior sovereign analyst for Latin America, noted that financing costs are determined by markets, not rating agencies.