Rating agency Moody‘s sees an improvement in Mexico‘s credit rating as unlikely in the near future and warned that the need for recurrent and substantial support from Petroleos Mexicanos (Pemex) is eroding the country’s fiscal strength. In a document, Moody‘s stated that Mexico maintains a “Baa1” rating with a negative outlook, the latter reflecting risks to economic growth and government finances.

He explained that the risks are, in part, a consequence of what he sees as a weaker political framework, with sluggish domestic demand, weak investment prospects and limited productivity that are weighing on medium-term growth prospects. Public finances The agency pointed out that public finances are exposed to lower-than-expected growth and also to the possibility that financial support for Pemex will be greater, since it is unlikely that the federal government will successfully address the strategic challenges of the oil company and those faced by the energy sector, in general.

Economic Activity However, the “Baa1” assessment reflects the large scale of the economy, a high degree of diversification and a history of economic resilience, but presents bottlenecks that hamper productivity, despite full market access of the United States, under the terms of existing free trade. To this is added the weak private investment and an austere fiscal stance that also weigh on economic growth.

Factors that would lead to a downgrade in the rating Moody’s pointed out that if medium-term growth stalls at a level below 2 percent, it would put downward pressure on the rating, as this would increase the probability of fiscal deficits greater than expected that they would lead to an increase in public debt. In addition, greater support for Pemex or lower government revenues could also lead to a downgrade in the credit rating of the sovereign debt.