Mexico City. The ability of the new Mexican government to reduce the fiscal deficit, which in 2024 will be around 6 percent of gross domestic product (GDP) “is limited by an increasingly rigid spending structure and a reduced income base,” Moody’s said this Thursday, announcing a change from “stable” to “negative” in the outlook for the country’s sovereign debt rating.
The change in perspective – which does not affect the level of investment – is also due to the fact that, according to the rating agency, the reform of the judicial branch has the potential to “substantially alter checks and balances, as well as the business environment in Mexico.
In response, the Ministry of Finance stated that the rating agency made its assessment without having the elements of the expenditure budget and fiscal policy for 2025, which will be presented tomorrow to Congress.
“This situation suggests that Moody’s analysis and perspective could have benefited from a more detailed and updated evaluation,” the Treasury said.
“At the time of its Council, the agency did not have information on the 2025 Budget, the proposed fiscal policy for next year or the projections that the Ministry of Finance will deliver to the Congress of the Union tomorrow,” he added.
The rating agency, for its part, explained that the change in perspective is due to a weakening of the institutional and policy-making framework that could undermine fiscal and economic results.
“The deterioration of debt affordability and greater rigidity in public spending make fiscal consolidation difficult, following the increase in the public deficit this year, a departure from a history of low deficits, regardless of economic pressures,” he stated.
He added that Mexico’s constitutional reform could weaken the checks and balances of the judicial system, with a possible negative impact on the country’s economic and fiscal strength.
In turn, he reported that there is a greater probability that the contingent liabilities derived from Petróleos Mexicanos – which has a negative outlook – will materialize on the government’s balance sheet and, at the same time, will not restore the sustainability of Pemex’s long-term debt. and therefore maintain fiscal risks for the government.
Regarding the affirmation of the sovereign risk rating, Moody’s said it reflects that Mexico’s credit profile continues to benefit from solid economic strength that will continue to be supported by the diversity of the economy, as well as the possible benefits of nearshoring .
Moderate macroeconomic imbalances, thanks to a history of relatively prudent fiscal and monetary policies, support the rating.
For its part, the Ministry of Finance mentioned that the arrival of new investments in the country, motivated by the relocation of companies due to trade tensions between the United States and China, offer significant potential for economic growth and reflect Mexico’s strategic position in the global business landscape.
He said that the debt of the Government of Mexico maintains a solid attractiveness in international markets, demonstrating a resilient profile in the face of economic fluctuations and financial volatility.
“Additionally, Mexico has the necessary fiscal buffers to mitigate possible adverse scenarios in the global environment, reaffirming the commitment of the Ministry of Finance to prudent management that reinforces the strength of public finances and the sustainability of the debt,” he said.
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#Moodys #outlook #Mexicos #sovereign #debt #rating #negative
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What are the key factors that influenced Moody’s change of outlook on Mexico’s sovereign debt rating, and how might these challenges interact with the judicial reform efforts underway in the country?
1. Could you please provide your insights on the reasons behind Moody’s decision to change the outlook on Mexico’s sovereign debt rating from “stable” to “negative” due to the challenges related to fiscal deficit and spending structure, as well as the potential implications of the ongoing judicial reform on the country’s economy and financial stability?
2. How do you anticipate the new Mexican government will address these issues, given the constraints they face in terms of fiscal deficit reduction and limited room for fiscal policy maneuvering?
3. What measures are being taken by the Mexican Ministry of Finance to ensure that the upcoming budget for 2025 will provide a more sustainable path towards reducing fiscal deficits and maintaining investor confidence in the country’s economic prospects?
4. How do you assess the potential risks associated with the proposed constitutional reform on Mexico’s economic and fiscal framework, particularly regarding the independence of the judiciary and the potential impact on the country’s business environment?
5. Given the ongoing geopolitical tensions and economic uncertainties globally, what impact do you foresee for Mexico’s economy in the short to medium term, particularly with respect to nearshoring and the relocation of businesses seeking alternative markets?
6. To what extent does the recent debt downgrade by Moody’s reflect the current state of Mexico’s macroeconomic imbalances, and what are the government’s strategies to mitigate these risks and promote long-term fiscal sustainability?
7. Lastly, could you elaborate on the main factors that contributed to Moody’s decision to maintain Mexico’s sovereign risk rating at its current level, despite the negative outlook, and how do you anticipate these factors will shape the country’s economic future in the coming years?
