Fitch Sends Warning To PEMEX

Fitch Ratings has ratified its previous Mexico sovereign credit rating, which stands at BBB-, but it has issued a warning regarding PEMEX debt. 

The ratification came with an evaluation of a stable outlook for the country’s standing debt, reported Expansión. However, the credit rating agency reported that Mexico’s debt could not be understood outside of its obligations to PEMEX, and that this could spell trouble for the country down the road. This connection limits Mexico’s capacity to improve its credit rating, since the country’s debt could increase if more assistance is given to the NOC or if more of its tax revenue decreases in an attempt to give it more financial maneuverability. “Our rating is restricted by a relatively weak governance, a dim performance in terms of long-term growth and the implication for the government’s finances of its strategy to alleviate PEMEX of its tax burden,” said the agency in a statement. The agency also noted that the country’s macroeconomic policy has remained consistent, that debt has not increased significantly and that major changes in fiscal policy have been avoided, all of which is why its outlook remains stable. This is the first time that Fitch has rated Mexico after PEMEX terminated its contract with the agency back in March. Back then, Fitch made it clear that they would continue to rate the NOC as a service to its other clients and investors. Fitch also increased Mexico’s GDP growth for 2021, from 4.2 percent to 5 percent, which is based mostly on the accelerated US demand increase.  

In response, SHCP issued a response to Fitch’s warning. In it, they made clear that their strategy to strengthen PEMEX had begun back in 2019, and that its prioritization of the NOC was due to it being the largest contributor to the federal budget. SHCP says that its investment in PEMEX needs to be understood as a medium to long-term plan, so measuring its impact and value in short term gains is inaccurate. “This strategy has already allowed us to stabilize the ongoing decrease in oil production and increase our reserves during 2019 and 2020, after years of consecutively lower numbers, without making our public finances any less healthy. In 2020, PEMEX contributed over US$30 billion to the government’s coffers in the midst of the worst year for the global oil and gas industry since 1933,” added SHCP in its statement. Meanwhile, PEMEX continues to pay off its debts to suppliers and service providers. El Financiero reported this week that PEMEX has paid back US$7 million of the US$26 million that it owes to offshore service provider Tidewater during 1Q21.