S&P Ratifies Mexico’s BBB RatingBy Jorge Ramos Zwanziger | Thu, 06/24/2021 - 13:34
Standard & Poor’s (S&P) confirmed Mexico’s long-term sovereign ratings in foreign currency of ‘BBB’ and in local currency of ‘BBB +’ through a global rating press release. The ratings were given partly due to the cautious macroeconomic measures that have kept the country’s debt stable at around 48 percent of its GDP.
Despite the rating, S&P’s does mention that “The negative outlook indicates the possibility of a rating downgrade over the next year due to a potentially weaker fiscal profile, given the extra-budgetary risks stemming mainly from Petróleos Mexicanos (Pemex) in the context of a comparatively low non-oil tax base and less fiscal space.”
The rating also addresses certain concerns from private businesses regarding Mexico’s energy sector, particularly in terms of electricity and hydrocarbons and the autonomy of certain regulatory organisms and powers. Both concerns have taken a toll on investments in Mexico and could impact the rating the company gives in the future even further.
However, S&P does mention ways in which Mexico can ameliorate these concerns, create more trust and certainty for investors and strengthen its GDP, such as “broader initiatives in policy-making to reform Mexico’s fiscal regimen could push more budgetary flexibility,” as well as measures to create more stability in the energy sector.
S&P addressed the recent results of the Mexican elections of June 6, 2021, where nationally and locally there is still a lot of support for President Andrés Manuel López Obrador, as his party’s simple majority in Congress can still push the political agenda for the remaining three years of his six-year term.
In terms of GDP, S&P’s expectations are more positive, forecasting a 5.8 percent increase in real GDP derived from an increase in demand from the US. The economic recovery the US is experiencing could impact the demand for foreign products and an increase in remittances that would benefit Mexico.
Deputy Minister of Finance, Gabriel Yorio, said on Twitter that “S&P highlights the work of the Mexican Government with the private sector in the implementation of two infrastructure packages and the commitment to fiscal prudence by keeping the debt controlled and stable.” Yorio remains positive that “This ratification benefits the Mexican economy as a whole by allowing access to financing.”