Moody’s cuts Mexico’s credit rating to the lowest investment-grade level

Credit rating agency Moody’s cut Mexico’s credit score to Baa3, its lowest level of investment grade and just one notch above junk status.

On the positive side, it revised Mexico’s outlook from negative to stable.

In announcing the reduction, Moody’s said Mexico’s weak economic growth reduces the government’s ability to generate revenue, while also dealing with an increasingly rigid budget, which notably includes financial support for the state-owned oil company Petróleos Mexicanos (Pemex).

Pemex station
Moody’s, like S&P and Fitch earlier, minced no words in placing a good share of the blame for Mexico’s sinking credit-rating on the drain on the public treasury caused by government support of Pemex, the state-owned oil company. (Camila Ayala Benabib / Cuartoscuro.com)

In its statement, Moody’s said the lower sovereign rating “will be partially offset by Mexico’s macroeconomic stability, policy responsiveness, and underlying economic strength, adding that “Mexico does not face macroeconomic imbalances that amplify fiscal risks.”

However, Moody’s warned that “continued support for Pemex will continue to limit fiscal consolidation.”

The Moody’s downgrade comes just eight days after S&P Global Ratings revised Mexico’s outlook to negative, citing weakening fiscal flexibility.

S&P also cited Pemex as a reason for its action, saying that “expected continued substantial fiscal support for Pemex and the Federal Electricity Commission would continue to aggravate Mexico’s fiscal rigidities.”

The Moody’s rating is now in line with Fitch Ratings, which reduced Mexico to “BBB-” in April 2020 (reaffirmed this year), and is one notch below S&P’s BBB rating.

Fitch, Moody’s, and S&P are the three largest global credit rating agencies, and all three now rate Mexico near the line between investment grade and speculative (aka “junk”). But while Moody’s has now joined Fitch in giving Mexico a Stable outlook, S&P recently dropped it to negative.

After Moody’s issued its latest decision, the Finance Ministry responded by outlining recent measures it has taken to keep public finances healthy, including a push for fiscal consolidation and a plan to lure more investments.

“Mexico maintains its investment-grade rating from all eight agencies that assess its sovereign debt, reflecting its commitment to responsible economic policy and the sustainability of public finances,” it said.

Last week after the S&P cutback, President Claudia Sheinbaum said Mexico would demonstrate that there are clear signs the economy is doing well.

Mexico’s economy contracted 0.8% in the first quarter this year, the worst result for the Mexican economy in any first quarter since 2020.

With reports from Bloomberg News, El Economista, The Wall Street Journal and El País  

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