Moody’s: Mexico’s fiscal strategy must be credible to maintain stable outlook

Mexico City, Sept. 27 (EFE) – The fiscal strategy defined by the Mexican government in 2024 must be credible after the June elections, as it will be crucial in defining the country’s stable outlook, warned the Moody’s rating agency on Wednesday.

“What we would expect to see over the course of next year, which will be key to considering whether the outlook remains stable or not, is whether the next administration will be able to present a credible plan and fiscal consolidation,” said Renzo Merino, Moody’s analyst for Mexico.

The analyst’s comment, made during the “Inside Latam: Mexico 2023” forum, comes amid growing government spending on social support, especially pensions for the elderly, as well as a global scenario of high interest rates and increasing support for state-owned Petróleos Mexicanos (Pemex), the most indebted oil company in the world.

Merino did not rule out a review of the country’s credit status within the rating agency in the 2024 election year.

He explained that they will take into account all available information, including the proposals of the presidential candidates.

In July, Moody’s decided to lower Mexico’s rating to “Baa2” with a “stable” outlook, but it has warned of greater fiscal pressure for the next administration after the presentation of the Mexican budget for 2024 on August 8.

“The expenditure structure has become more rigid during this administration due to recurring financial support to Pemex, increased pensions, growing investment in emblematic projects, and higher interest payments,” the rating agency said two weeks ago.

Mexico’s credit rating could be at stake next year, as the country is two notches away from losing its investment grade from Moody’s, which would make it difficult to access more expensive financing under conditions of greater pressure.

“The 2024 budget has indeed disrupted the perception of fiscal management that we expected in Mexico,” Merino added.

Mauro Leos, associate director of sovereign risk at Moody’s, argued that beyond the presidential election and its outcome, it is the fiscal management that could affect the country’s future prospects.

“What matters is what happens in the next six-year term, and neither Claudia nor Xóchitl know what will happen,” he said.

Meanwhile, Moody’s analysts expected that these pressures on spending and a lower level of revenue, which will leave in 2024 the largest fiscal deficit in Mexico’s history, could be reduced by the will and ability of the next administration to apply some reforms. EFE jsm/mcd