MEXICO CITY (Reuters) – Moody’s Buyers Service on Friday reduce Mexico’s credit standing by one notch because it expects weak funding prospects and elevated structural rigidities to constrain exercise in Latin America’s second-largest economic system.

Edging nearer to speculative grade, Mexico’s senior unsecured long-term score is now “Baa2”.

“The financial scarring that befell throughout the pandemic is not going to be reversed and, consequently, there shall be a persistent hole between the pre-pandemic development stage for GDP and present estimates for 2022-24,” the company stated in a observe.

Weak funding dynamics have been an necessary driver of financial underperformance, particularly since 2018, when Andres Manuel Lopez Obrador was elected president, stated Moody’s.

“This, together with a constrained fiscal help package deal, have contributed to a lagged financial restoration from the pandemic shock,” it added.

Within the absence of unanticipated shocks and assuming rising financial and financial pressures, the company modified Mexico’s outlook to “secure”, arguing that the credit score profile will stay aligned with similarly-rated governments via the top of the present administration.

It additionally famous that prudent fiscal administration below austere Lopez Obrador has restricted the deterioration within the authorities’s debt burden.

Reiterating its promise to strengthen public funds and hold a lit on debt, the finance ministry responded in an announcement that the nation has the “monetary shock absorbers” to face up to international dangers.

Julio Ruiz, chief economist for Mexico at Brazilian financial institution Itau, argued the Mexican economic system nonetheless had a protracted solution to go to succeed in its pre-pandemic ranges.

“Assuming a context the place exterior components are favorable, on the very least firms would want extra certainty from the federal government to extend funding,” stated the previous finance ministry official. “There cannot be fixed coverage adjustments.”

Earlier this week, rival scores company S&P International Rankings lifted Mexico’s credit score outlook to “secure” from “unfavourable” on fiscal and financial coverage enhancements, and what it known as “much less uncertainty about vitality coverage”.

Lopez Obrador failed earlier this 12 months to push via a controversial constitutional electrical energy overhaul.

(Reporting by Arunima Kumar in Bengaluru and Stefanie Eschenbacher in Mexico Metropolis; Modifying by Devika Syamnath and Diane Craft)

Copyright 2022 Thomson Reuters.

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