Photo: S&P

By THE PULSE NEWS MEXICO STAFF

The New York-based international credit agency Standard & Poor’s (S&P) ratified Mexico’s long-term sovereign rating on Tuesday, June 15, at BBB in foreign currency and BBB+ in local currency, both with “a negative outlook.”

This announcement was made by the agency following Mexico’s June 6 midterm elections, in which the ruling party, the National Regeneration Movement (Morena), along with its allies, maintained a simple majority in the Chamber of Deputies.

That majority, S&P said, will allow leftist President Andrés Manuel López Obrador (AMLO) “well positioned to promote his political agenda in the second part of the six-year term.”

“We assume that the president will maintain a cautious macroeconomic management, with a net government debt that will remain stable at about 48 percent of the Gross Domestic Product (GDP) during the next three years, while growth will decelerate after a rebound of 5.8 percent in 2021, due to pressures within the business environment,” the S&P said in its ratings report.

The agency also said that there are some longstanding issues that weigh heavily on investment in Mexico, along with some associated with recent policies implemented by the AMLO administration.

The S&P said that Mexico’s ratings are based on the strengths and weaknesses of its democracy, which has generated political stability and regular government changes in the past two decades.

“In fact, the National Electoral Institute (INE) recently supervised the elections that overall did not present problems or challenges, for around 20,000 positions, the largest in the recent history of the country,” the report said.

Notwithstanding, S&P warned that Mexico has not shown the same economic dynamism as other emerging economies, adding that one of its gravest concerns is public safety, which, among other things, has led the country to a state of severe political polarization.

“We expect growth to remain below that of its peer countries, and that the post-pandemic rebound may be affected by weak private investor confidence due to the deterioration in the business environment,” the S&P said.

In addition, the rating agency stressed that the state-run oil venture Petróleos Mexicanos (Pemex) could continue to be a tax burden for the government.

“The greatest risks to the sovereign’s fiscal performance stem from the weak financial profile of the state energy company Pemex,” it said.

“We continue to view the likelihood of the sovereign providing extraordinary support to Pemex as almost certain, and the recent history of support reinforces this assessment. As such, we rate Pemex at the same level as the sovereign, despite its weak individual financial profile.”

 

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