The Secretariat of Finance (SHCP) has spoken out against the decision by Fitch Ratings to downgrade the credit ratings of Mexico and the state oil company, describing the move as “unfortunate” and stating that the government strongly disagrees with it.
On Wednesday, Fitch cut Mexico’s sovereign rating from BBB+ to BBB – one notch above junk status – and yesterday reduced Pemex’s rating from investment grade to speculative with a negative outlook.
Fitch said that Pemex’s deteriorating credit profile posed an increased risk to public finances and that there is “ongoing weakness in the macroeconomic outlook, which is exacerbated by external threats from trade tensions.”
The ratings agency said that downgrading Pemex’s credit rating from BBB- to BB+ – junk status – was due to its weak financial position and “slow action” by the government to strengthen its capital structure, among other factors.
But the finance department said “it’s unfortunate the Fitch Ratings agency is doubly penalizing the country’s balance sheet.”
“On the sovereign side, they argue that the risks to public finances have increased because Pemex’s debt represents contingent liability for the federal government, assuming imminent support to the entity. At the same time, the agency penalizes Pemex’s rating because it considers that the federal government’s support is moderate or insufficient. The government expresses its strong disagreement with the perspective applied by this ratings agency.”
The SHCP pointed out that the ratings cuts occurred “even as the federal government has demonstrated its total support for [Pemex] and is working to provide a solution to its structural and financial problems.”
It added that the government will continue to support Pemex “through structural measures and liquidity” in order to make it an “efficient and profitable company in the medium and long term.”
In addition to Fitch’s cut, Mexico’s sovereign rating was also dealt a blow this week by Moody’s Investor Services, which cut its outlook for the country from stable to negative but maintained its rating at investment grade A3.
The company said in a statement that “the Mexican government’s increasingly unpredictable policy-making is undermining investor confidence and medium-term growth prospects.”
Jaime Reusche, a Moody’s vice president and senior analyst, said that institutional weakness as a result of decisions taken by the government is also a concern.
“We’re seeing a deterioration in what was before a very important strength for Mexico . . .” he said.
Reusche also said that for “many years” corruption has been a factor that has weighed on Mexico’s sovereign rating.
President López Obrador, who has made combating corruption a central crusade of his administration, today repudiated the new credit ratings assessments.
“We don’t agree with the opinions of the ratings agencies,” he told reporters at his morning press conference.
“I again reiterate that they’re using an outdated methodology from the neoliberal period . . . Pemex doesn’t have any problem to restructure its debt. There are more than enough offers.”
Specifically referring to Moody’s assessment that corruption has limited the possibility of an upgrade to Mexico’s credit rating, the president declared that corruption is no longer tolerated.
López Obrador also charged that his government has stabilized production at Pemex “in record time” and once again accused ratings agencies of failing to act when the state oil company’s finances and productivity deteriorated during the terms of previous federal administrations.
“They weren’t objective or professional because they turned a blind eye to the downfall of Pemex, to the debt, to the corruption. Where were they? Did they just notice now?”
Source: El Financiero (sp), El Universal (sp), Milenio (sp)
