Judicial reform

Mexico City. The ability of the new Mexican government to reduce the fiscal deficit, which in 2024 will be around 6 percent of gross domestic product (GDP) “is limited by an increasingly rigid spending structure and a reduced income base,” Moody’s said this Thursday, announcing a change from “stable” to “negative” in the outlook for the country’s sovereign debt rating.

The change in perspective – which does not affect the level of investment – ​​is also due to the fact that, according to the rating agency, the reform of the judicial branch has the potential to “substantially alter checks and balances, as well as the business environment in Mexico.

In response, the Ministry of Finance stated that the rating agency made its assessment without having the elements of the expenditure budget and fiscal policy for 2025, which will be presented tomorrow to Congress.

“This situation suggests that Moody’s analysis and perspective could have benefited from a more detailed and updated evaluation,” the Treasury said.

“At the time of its Council, the agency did not have information on the 2025 Budget, the proposed fiscal policy for next year or the projections that the Ministry of Finance will deliver to the Congress of the Union tomorrow,” he added.

The rating agency, for its part, explained that the change in perspective is due to a weakening of the institutional and policy-making framework that could undermine fiscal and economic results.

“The deterioration of debt affordability and greater rigidity in public spending make fiscal consolidation difficult, following the increase in the public deficit this year, a departure from a history of low deficits, regardless of economic pressures,” he stated.

He added that Mexico’s constitutional reform could weaken the checks and balances of the judicial system, with a possible negative impact on the country’s economic and fiscal strength.

In turn, he reported that there is a greater probability that the contingent liabilities derived from Petróleos Mexicanos – which has a negative outlook – will materialize on the government’s balance sheet and, at the same time, will not restore the sustainability of Pemex’s long-term debt. and therefore maintain fiscal risks for the government.

Regarding the affirmation of the sovereign risk rating, Moody’s said it reflects that Mexico’s credit profile continues to benefit from solid economic strength that will continue to be supported by the diversity of the economy, as well as the possible benefits of nearshoring .

Moderate macroeconomic imbalances, thanks to a history of relatively prudent fiscal and monetary policies, support the rating.

For its part, the Ministry of Finance mentioned that the arrival of new investments in the country, motivated by the relocation of companies due to trade tensions between the United States and China, offer significant potential for economic growth and reflect Mexico’s strategic position in the global business landscape.

He said that the debt of the Government of Mexico maintains a solid attractiveness in international markets, demonstrating a resilient profile in the face of economic fluctuations and financial volatility.

“Additionally, Mexico has the necessary fiscal buffers to mitigate possible adverse scenarios in the global environment, reaffirming the commitment of the Ministry of Finance to prudent management that reinforces the strength of public finances and the sustainability of the debt,” he said.