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S&P Retains Mexico’s BBB Rating

By MBN Staff | Fri, 12/04/2020 - 14:43

Standard & Poor’s has retained Mexico’s BBB long-term currency and BBB+ long-term local currency sovereign credit ratings despite the difficult year that analysts had predicted would shrink the economy by at least 10 percent.

The credit ratings agency, one of the largest in the world, said in a statement that Mexico’s credit rating remained negative overall due in part to the struggling performances of national oil company PEMEX this year, which recorded a record loss US$23 billion in 1Q20.

S&P and other credit ratings agencies have in the past warned of the relationship between the state and PEMEX. Though PEMEX has received heavy financial backing from the government, its debt continues to grow. The 32 percent decrease in sales during 3Q20 means the company’s debt now stands at US$110.3 billion.

PEMEX’s performance and the prediction of a slow economic recovery for Mexico means that the country’s ratings may be downgraded in the next 12 to 18 months, S&P warned. It also said that it expected the federal government to strongly back PEMEX once again.

For the moment, President Andrés Manuel López Obrador is likely to be content with retaining the country’s rating. COVID-19’s economic impact has been particularly brutal in Mexico. The country lost over a million jobs from the formal sector earlier this year – a figure likely to have been amplified in the large informal market – and over 107,000 people have now died from the virus.

The country’s central bank, Banxico, said in its 3Q20 report that the economy would shrink by between 8.7 percent and 9.3 percent this year, an improvement on -8.8 percent to -12.8 percent forecast Banxico gave in its July-September report.

However, this recession will still increase government debt to roughly 50 percent of the country’s GDP, said S&P, up from 42 percent recorded in 2019.

This will mean that the general government deficit will sit at roughly 3 percent for the year. This is in comparison to the US’ suspected 15.2 percent deficit of– triple that of 2019, and Brazil’s deficit of 12.1 percent for 2020, the country’s highest ever rate.

In November, BBVA recommended that Mexico change its approach to PEMEX in order to reduce the country’s risk to a downgrade of its sovereign ratings, reported Forbes.

MBN Staff MBN Staff MBN staff