Standard & Poor’s (S&P) affirmed Mexico’s sovereign rating on Tuesday at BBB in foreign currency and BBB+ in local currency, both with a negative outlook.
The negative outlook points to the possibility of a rating downgrade over the next year due to the likely weak financial position, given the pressure of contingent liabilities related to the amount of potential exceptional support for Petróleos Mexicanos (Pemex) and the Federal Electricity Commission (CFE) in the context of a relatively low non-oil tax base and less fiscal space.
On the contrary, the Mexico note will benefit from effective economic management that improves investor confidence and encourages private investment, which may mitigate the structural weakness of GDP growth expectations, which in turn will help boost public finances, the agency noted.
Mexico’s rankings are based on the strengths and weaknesses of its democracy, which has generated political stability and regular changes of government in the past two decades. At all times, political support for prudent macroeconomic management has supported prudent fiscal and monetary policies and a floating exchange rate system.”
“These aspects are fundamental to our assessment of sovereign credit quality and have maintained investor confidence, as well as access to international capital markets, even in times of adverse trends around the world,” the rating agency added.
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