Moody’s Cuts Mexico Credit Rating to One Notch Above Junk
Moody’s Ratings cut Mexico’s credit score to the lowest tier of investment grade, citing the country’s weakening fiscal position and stoking concern Latin America’s second-largest economy is heading toward junk status.
The firm downgraded Mexico to Baa3 from Baa2, while revising its outlook to stable from negative, according to a statement on Wednesday. The move comes a week after S&P Global Ratings the nation’s credit outlook to negative from stable.
The downgrade “reflects a sustained weakening in fiscal strength that accelerated in 2024 and that we expect to persist,” Moody’s analysts wrote. “Rigid spending, a narrow revenue base, and continued support to Petroleos Mexicanos limit the government’s ability to stabilize debt in a low-growth environment.”
The peso slipped as much as 0.4% Thursday, dropping with most other emerging-market currencies. Mexico’s dollar bonds edged lower across the curve, with notes due 2034 falling 0.3 cent to 104.8 cents on the dollar, according to pricing data compiled by Bloomberg.
“Moody’s downgrade of Mexico is actually quite important, not because it’s going to have immediate market impact, but because FX, and especially the peso, has been completely oblivious to these issues,” said Alvaro Vivanco , an emerging markets macro strategist at Wells Fargo. “The fiscal has quietly deteriorated in Mexico.”
Ahead of the decision, Moody’s had sought clarity from authorities on how the Middle East conflict could affect a budget plan presented in early April, in which the government forecast a narrower deficit next year, as well as progress on a strategic overhaul of Pemex and USMCA talks, Renzo Merino , a senior credit officer in the sovereign risk group at the ratings firm .
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The Moody’s score is now in line that from Fitch Ratings, which has Mexico at BBB-, and one notch below S&P’s BBB rating.
After the downgrade, the Finance Ministry issued a statement highlighting recent measures to keep public finances healthy, including a push for fiscal consolidation and a plan to lure more investments.
“Mexico maintains its investment-grade rating from all eight agencies that assess its sovereign debt, reflecting its commitment to responsible economic policy and the sustainability of public finances”, the ministry said.
Mexican officials have pushed back on the idea that the recent credit outlook and rating revisions are a gauge of the economy, saying that in time the country will recover its previous scores. President Claudia Sheinbaum said last week that Mexico will show S&P was wrong about revising its outlook and there are signs the economy is doing well.
Moody’s had warned in February that ongoing support to Pemex could pressure the country’s debt metrics, and that uncertainty around this year’s review of the USMCA trade pact is also weighing on investor sentiment. Mexico last year raised a record $41 billion in hard-currency bonds as part of a broader plan from Sheinbaum’s government to support the state-owned oil company.
Read more: Pemex Support Cited in Moody’s Mexico Downgrade: Credit React
Earlier this week, Citi economists and strategists said that the market isn’t fully pricing the medium-term risk of Mexico losing its investment grade rating and becoming a so-called fallen angel.
“While spreads already reflect much of this expected downgrade and screen cheap relative to ratings, the trajectory remains negative given ongoing fiscal slippage and Pemex-related risks,” the Citi note said.
