Mexico is still considered an acceptable country to maintain its investment grade, but there are factors that concern rating agencies.
During the annual event “Moody’s Inside LatAm Mexico,” Renzo Merino, Moody’s sovereign analyst for Mexico, stated that a downgrade of the country’s rating, currently at “Baa2” with a stable outlook, is unlikely. Such a downgrade would require a scenario of greater macroeconomic weakness and institutional deterioration. However, there is indeed concern.
“Despite the judicial reform and other structural changes that will be implemented in the country, Moody’s continues to view Mexico with investment grade, but there are concerns and uncertainties due to fiscal deterioration, weak growth, and the pressure of supporting Pemex,” said the specialist.
“A sharp change in the rating is unlikely without a material shock that affects the credit profile. To put it in context, this only happened during the pandemic,” said the analyst.
In this regard, he added that for a loss of investment grade to occur, there would need to be significant institutional deterioration and weak macroeconomic prospects for the country.
According to the analyst, a year ago, the outlook for the country was still positive, as the arrival of foreign companies was expected to trigger greater investment and economic growth, driven by nearshoring.
“However, many of the investment announcements or projects have not materialized, while political concerns emerged after the presidential elections and the expected changes by the next administration,” he explained.
“In June, our expectation was that Mexico would defy historical trends because election years usually do not bode well in terms of growth. However, with nearshoring, we expected a growth trend of between 2.5% and 3% for the coming years,” said Renzo Merino.
Pemex, the Major Risk
On the other hand, Roxana Muñoz, a Moody’s analyst for Pemex, said that the company could require up to $20 billion in government support by 2026 due to its fragile financial situation.
As a result, the new government led by President Claudia Sheinbaum will face a fiscal puzzle, pressured by high support for Pemex and spending demands from social programs, Moody’s warned.
Muñoz explained that the oil company began and will end the current administration facing numerous challenges, as refineries continue to generate losses, fiscal pressures increase, and no short-term improvement is expected.
In an optimistic scenario, she added that the next administration could surprise with measures such as greater openness to private investment or new agreements with the union regarding pensions.
Moody’s thus clears up doubts at the start of a new administration in Mexico, this time led for the first time by a woman, Claudia Sheinbaum, and confirms that the country will retain its investment grade.
