A couple of weeks ago, Fitch reduced PEMEX’s debt rating, which gave the first signs of how economic forecasts would be announced in the following days. Fitch downgraded PEMEX’s rating due to the debt problems faced by the oil company and because a feasible plan by the government to rescue it was not in sight.
On March 1, Standard & Poor’s downgraded Mexico’s sovereign debt from ‘stable’ to ‘negative’ because of the decline in the outlook for growth and the change in public policies in the energy sector. “The negative outlook of PEMEX’s global scale rating reflects that of the sovereign and our opinion that the close relationship between the company and the federal government will remain unchanged during the following years,” they said in their statement.
In addition, the Organization for Economic Cooperation and Development (OECD) reduced growth expectations for the Mexican economy to 2% by 2019 and 2.2% by 2020, 0.5 percentage points less than previously expected for both years. “The great political uncertainty, the current commercial tensions and a greater erosion of business and consumer confidence are contributing to the slowdown,” the OECD said in its report.
The International Monetary Fund (IMF) -for its part- lowered the growth prospects in Mexico for both 2019 and 2020 due to the decrease in the expectations of attracting foreign investment in the country. Finally, the Bank of Mexico also reduced, for the third consecutive time, the expectations of economic growth in the country, leaving it in a range of between 1.1% and 2.1%. placing it .0.6 percentage points less than the range of the previous perspective that ranged between 1.6% and 2.7%
The decision on the oil debt rating by Moody’s is still pending, which is expected to be similar to that of the other rating agencies. Moody’s has questioned PEMEX’s current direction: “Despite the higher capital expenditure in 2019, we believe that it is unlikely that Pemex will achieve the government’s production goals without an improvement in capital efficiency,” the ratings agency said. release.
These reductions in the rating of the debt by different rating agencies and international and national organizations indicate that Mexico, with the current economic model, will not grow at rates higher than 2%. These perspectives contrast with the numbers given by the current administration, whose prospects have reached a growth of 4%.
Although members of the party in power in the Congress were pronounced to regulate the work of the rating agencies in the country, President Andrés Manuel López Obrador clarified that it will not limit the work of these agencies. However, the government has not yet announced measures that could cause rating agencies and financial organizations to correct the economic outlook of PEMEX and Mexico. PEMEX’s recent financial restructuring plan was described as insufficient by the rating agencies, giving another blow to government policies to clean up the oil company’s finances.
The effects of this decline in ratings and growth expectations are already manifesting. The Mexican Stock Exchange had the longest period of decline since 2015. Financial institutions have indicated that, if they do not act with public policies that provide certainty, consumption could be affected, further impacting economic growth.
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