More Rating Downgrades on the Horizon

The private sector is not the only one with doubts about AMLO’s economic plan to face the COVID-19 sanitary and economic emergency. Analysts from diverse financial institutions estimate that the plan will hardly do anything to improve the country’s economic situation. Rather, it increases the possibility of the country experiencing further rating downgrades by international rating agencies.

For Citibanamex, President López Obrador’s message regarding an MX$158 billion (US$6.57 billion) plan to combat the economic impact of COVID-19 comes too late and is too little considering the impact of the pandemic. “We were skeptic regarding the announcement of significant economic policy. However, AMLO’s message on Sunday essentially minimized the COVID-19 crisis … and reaffirmed the economic strategy that his administration has enforced until now,” said a report presented by Citibanamex on Monday. The report mentions that the president insisted on how the plan the administration was implementing would “break the mold” and spoke against counter-cyclical measures which, in his opinion, “only deepen inequality.”

According to Bank of America (BofA), the Mexican economy will experience an 8 percent contraction in 2020, given that the president’s plan does not include any counter-cyclical measures nor support for companies that are being impacted by the crisis. BofA specialists say that the president plans to continue implementing the same measures: more social programs, investment in the refinery, other infrastructure projects and more austerity. According to BofA, the announcement was not a new economic plan nor entailed an economic adjustment and will lead to closure of businesses. Moreover, BofA estimates that Moody’s or Fitch Ratings will downgrade Mexico’s sovereign rating in the coming weeks or days.

Citibanamex’s report concludes saying that the president’s message confirmed the current worries that surround the Mexican economy. Moreover, the report emphasizes the political and ideological nature of the message, where the only proposal from the private sector that was accepted was to accelerate VAT returns. “The message this Sunday presents a president that faces a drastic change of circumstances but that insists that his course of action is the right one.”