S&P Stands by Mexico

S&P has affirmed its BBB+ (stable) Mexico rating, despite the buffeting it is getting from global financial meltdown. “Volatility in international financial markets and the downturn in US and global economic activity will not undermine Mexico’s commitment to macroeconomic stability nor weaken its creditworthiness,” says S&P credit analyst Lisa Schineller. However, the agency notes that the combination of a sharp slowdown in real GDP growth in 2009 along with lower oil revenues will pressure the budget, and adds that Mexico has limited room for countercyclical fiscal policy. S&P expects the government to permit sufficient capital investment by Pemex to maintain oil production near current levels. “Mexico has a track record of adjusting to adverse fiscal developments, and recent improved cooperation across parties to advance pieces of legislation suggests that such proactivity will continue,” says S&P. Mexico’s rating trajectory will depend on the ability of the Calderon administration to manage upcoming fiscal strains and contain the increase in the public-sector borrowing requirements while allowing for significant levels of investment by Pemex over the next several years, it adds. “Lower growth and government oil revenues, combined with congressional elections in mid-2009, could generate political pressure to shift away from the fiscal and monetary policies that have underpinned Mexico’s improved sovereign creditworthiness,” S&P warns. However, the agency expects the government to act prudently by compensating for declining oil revenues and, consequently, support Mexico’s debt and fiscal dynamics.