Fitch Ratings confirms Mexico's rating: challenges and perspectives

Fitch Ratings has confirmed Mexico's credit risk rating at 'BBB-' with a stable outlook, highlighting that this decision is based on a prudent macroeconomic policy framework, stable external finances, and a public debt/GDP ratio below the 'BBB' median. However, the rating agency has pointed out limitations, such as weak governance indicators, a history of moderate long-term growth, and fiscal risks related to Pemex's contingent liabilities and budgetary rigidities. One of the key points that Fitch Ratings has emphasized is the package of reforms proposed by President Andrés Manuel López Obrador, which, if implemented, could have a negative impact on Mexico's institutional profile. Despite this, the agency believes it is too early to assess the extent of this impact before the reforms are approved and put into action. Regarding governance in Mexico, Fitch notes that it is relatively weak, with a score on the World Bank's Worldwide Governance Indicator below the 'BBB' median. Additionally, it projects a general government deficit of around 5.4% of GDP in 2024 and 4% in 2025, representing a significant increase compared to previous years. The agency highlights that the 2024 budget includes a fiscal deficit of the non-financial public sector exceeding 5% of GDP, reaching levels not seen in over three decades. This situation poses a challenge for the incoming administration, which will have to contend with a considerable deficit caused by increased social spending and higher debt costs. Regarding Pemex, Fitch Ratings does not expect changes in government financial support for the oil company during Claudia Sheinbaum's administration. The agency emphasizes the intention to maintain Pemex's dominant position in the Mexican oil market, which may require ongoing federal transfers unless the company improves its operational efficiency or reduces its debt burden. In terms of economic growth, a slowdown in Mexico's real GDP is expected, decreasing from 3.2% in 2023 to 2% in 2024 and 1.8% in 2025. Despite this deceleration, Fitch projects a recovery in economic activity for the rest of the year, following a first quarter marked by a weaker economy. In summary, the confirmation of Mexico's credit risk rating by Fitch Ratings with a stable outlook reflects both strengths and weaknesses in the country's economy. The uncertainty surrounding the impact of reforms proposed by the current government, fiscal challenges, and the need for ongoing support to Pemex pose significant challenges for the incoming administration, which will need to make strategic decisions to maintain economic stability in a changing global context.