Fitch says fiscal challenges, Pemex debt main obstacles for Mexico's new administration

(MENAFN) Fitch Ratings underscored significant fiscal challenges facing Mexico's new administration in its latest assessment released on Monday, pinpointing a high budget deficit and the substantial debt burden of state-owned petroleum firm Pemex as primary concerns.

According to Fitch, Mexico's fiscal deficit for 2024 surpasses 5 percent of GDP, marking its highest level in over three decades. This precarious fiscal position is attributed to a confluence of factors, including escalating social spending, elevated borrowing costs, and substantial investments linked to the completion of critical infrastructure projects initiated by the previous administration.

The rating agency projects a further escalation in general government debt, expecting it to climb to 48.8 percent of GDP in the current year, up from 45.6 percent. While the new administration has expressed intentions to rein in the deficit to levels conducive to a stable debt-to-GDP trajectory, uncertainties persist regarding the precise strategies for achieving this goal. Notably, the feasibility of implementing reforms aimed at enhancing tax collection remains uncertain amidst evolving political dynamics.

Of particular concern is the sizable debt burden of Pemex, which stands at nearly 6 percent of GDP, constituting a significant contingent liability for Mexico. Fitch emphasizes that Mexico's federal government has provided substantial support to Pemex, amounting to approximately USD70 billion or 4 percent of GDP over the past five years, effectively absorbing the oil company's debt into its own balance sheet.

Despite advocacy from the incoming administration for maintaining Pemex's prominent role in Mexico's oil market, Fitch cautions that this stance necessitates continued federal government transfers, absent substantial improvements in the company's operational efficiency.

Against this backdrop, Fitch projects a moderation in Mexico's economic growth, anticipating a decrease to 2.2 percent in the current year from 3.2 percent in the previous year, with further deceleration to 2 percent anticipated in 2025.

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