Fitch Ratings confirmed Mexico’s sovereign debt rating at BBB- with a stable outlook. With this, the obligations backed by public finances maintain the investment grade, at the lowest level and one step away from speculative territory, while no changes are expected in this evaluation in a period of six to 18 months.
The Ministry of Finance and Public Credit recalled that so far this year five agencies have ratified Mexico’s rating, Fitch’s “allows Mexico to maintain solid macroeconomic balances and stable public finances, guaranteeing access to national and international financial markets ”.
The risk firm explained that “Mexico’s rating is supported by a prudent macroeconomic policy framework, stable and solid external accounts,” but “is constrained by a weak government, moderate long-term growth performance, continued political intervention that affects the investment perspectives and the possible contingent liabilities of Petróleos Mexicanos (Pemex)”.
Fitch noted that the current administration has maintained moderate fiscal deficits, even acknowledging that the proportion of indebtedness in relation to the gross domestic product (GDP) is below qualified economies in the same range of BBB.
Expenditures this year are expected to exceed receipts by 3.3 percent as a proportion of GDP. Although the collection efficiency measures applied by the Tax Administration Service may have an effect in the short term, in the absence of a tax reform, a profound improvement in revenue is not expected, he pointed out.
He added that as a result of the increase in the price of oil at the international level, oil revenues will be higher than budgeted by the federal government, but they will be absorbed by gasoline subsidies. Public finances will not have an impact as long as crude does not trade above $100 a barrel.
The rating agency expects that public finance support for Pemex will be reduced this year, after discounting the reduction in the tax burden, through the shared utility right, and the injection of capital for 2.2 billion dollars to cover maturities that It was done in the first quarter of the year. However, as the price of oil moderates in 2023, support will return “given the structural financial weaknesses” of the company.
Also as a risk to the sustainability of public finances is a growth that Fitch estimates at 2 percent for 2022 and that it remains at this level the following year. Until 2023, the Mexican economy is expected to recover to pre-pandemic levels, which will leave it behind countries with a similar credit rating and peers in Latin America.
The firm considers that the Bank of Mexico will make more increases to its reference rate, given the international environment, but the external risks for public finances seem contained by the floating exchange rate and international reserve levels, in addition to access to the line flexible credit of the International Monetary Fund.