AP – Mexico’s president lashed out at Moody’s ratings service, after it downgraded the Mexican government’s debt outlook to “negative”.
Moody’s said it had downgraded the government’s debt outlook from “stable” to “negative” because newly approved laws in Mexico could weaken the judiciary branch and checks and balances. It reaffirmed Mexico’s Baa2 overall credit rating, but said increased government debt represented a risk for Mexico.
It also mentioned the possibility that the government will have to transfer more money to shore up the highly indebted state-owned oil company, Pemex.
“Deteriorating debt affordability and further government spending rigidity make fiscal consolidation challenging, following this year’s widening in the government deficit,” Moody’s wrote, “a deviation from a longstanding track record of low deficits regardless of economic pressures”.
President Claudia Sheinbaum said that ratings agencies often have a “bias of origin” against the economic policies her party adopted under former President Andrés Manuel López Obrador, who took office on December 1, 2018.
“Many times these ratings agencies are aimed at issuing evaluations starting from an economic model,” Sheinbaum said.
“Starting in 2018, the economic model in our country changed. Many times these ratings have this bias of origin.”
Under López Obrador, who was Sheinbaum’s political mentor, the government began transferring large amounts of money to the state-run oil company, started large building projects and implemented cash handout programmes.
That led to federal budget deficits of about six per cent of Mexico’s gross domestic product in 2024. Sheinbaum ruled out enacting new taxes next year and said she would rely on increasing tax collection from existing sources. But in the 2025 federal budget submitted by her administration to Congress on Friday, it was clear that sizable budget deficits would continue for some time.
Mexico’s treasury department said it would aim to reduce the deficit to 3.9 per cent of gross domestic product (GDP) in 2025, but it was unclear if it could achieve that: López Obrador left behind a lot of unfinished train and oil refinery projects, and Sheinbaum has expanded benefit programmes for the elderly. “The government will only gradually narrow the deficit in coming years,” Moody’s wrote.
The 2025 budget said Mexico’s outstanding federal debts would finish 2025 at around 51.4 per cent of GDP. But that doesn’t include a lot of government oil company and pensions debts. It also predicted the economy would grow by between two and three per cent in 2025, something analysts say is optimistic, given that Mexico’s GDP grew by only 1.5 per cent in the third quarter of 2024.
The government is also expecting the exchange rate to improve to MXN18.70 to USD1 and inflation to fall to 3.5 per cent, both of which also seem highly optimistic.
The Mexican peso has dropped in value to about 20.40 to USD1 in recent days.
The election of Donald Trump in the United States (US) may also weigh on Mexico’s economy, given his past threats to close the border and impose tariffs.
Moody’s said Mexico has been benefitting from “nearshoring” investments by companies seeking to move production closer to the US market. But it noted “additional downside risks to investment dynamics could emerge ahead of the revision of US-Mexico-Canada Agreement (USMCA) in 2026, particularly if modifications to the agreement’s rule of origins, labour specifications and other US trade policies towards Mexico changed in a way that durably limit the country’s exports”.
“Lower economic growth and, consequently, government revenue would undermine fiscal consolidation efforts,” it continued.
Perhaps most importantly, Sheinbaum has continued López Obrador’s push to implement changes to the judiciary that will make all federal judges stand for election in 2025 and 2026.
