Pemex is the biggest risk factor for Mexico’s public finances. It is the most indebted public company in the world and it does not have a financial strategy that could give it any viability, warned the Director of Risk for Latin America at Fitch Solutions, Andrew Trahan.
Pemex is the biggest risk factor for Mexico’s public finances. It is the most indebted public company in the world and it does not have a financial strategy that could give it any viability, warned the Director of Risk for Latin America at Fitch Solutions, Andrew Trahan.
The big question being asked in the economic research area of the Fitch rating agency is what will happen to the oil company at the end of the administration of President Andrés Manuel López Obrador.
In a webinar to learn about the economic prospects for the region, the expert commented that it has become clear that the government will continue to capitalize Pemex and help it with its payment requirements in these last two years of the administration.
Even if Claudia Sheimbaum, who is the most mentioned candidate of the Morena party to run in the 2024 elections, is left in charge, they will have to develop some strategy to support Pemex, she commented.
We don’t expect much from its oil production and the government will be under strong pressure to continue supporting it financially, she stressed.
Because it is a conference where analysts from the research area participated, they omitted to comment on the note from the oil company and the sovereign. However, she recalled that Pemex’s Fitch rating has been kept at speculative grade since June 2019 and highlighted that the downgrade has deepened.
The oil company’s rating is currently at “BB-“, which is three levels below investment grade and with a stable outlook.
mexican peso with wings
The expert also spoke of the super weight. “The Mexican peso has been flying for a couple of months. It is a currency that has strengthened and stands out among those of Latin America and among the other emerging currencies ”, he stated.
There are many factors behind this strength: the wide differential in interest rates, the low volatility of the Mexican market compared to other large emerging markets, the low political volatility, the flow of capital that is arriving due to the relocation of investments to bring the production chains closer to the North American market and the consistent flow of remittances, he said.
He considered that given the outlook for the region’s emerging markets, such as Brazil, Peru and Argentina, it can be expected that the rally will continue in favor of the Mexican peso for a while longer.
GDP will withstand mild US recession
She considered that the probable economic recession in the United States will hit Mexico’s Gross Domestic Product, but it is still early to anticipate the magnitude of the impact.
The nearshoring or relocation of productive investments to Mexico to bring the production chains closer to the final market is a long-range positive story that, in the short term of this year, may help to somewhat offset the slowdown, she warned.
He said that his central scenario is for a Mexican GDP that will advance by 1% this year, which implies a slowdown from the 3% that he estimates will allow the economy to grow in 2022.
But this slowdown faces strong downside risks if an economic recession is confirmed in the United States, which will affect Mexico via remittances, investments, and demand for manufacturing.
Political network, weakness
Trahan considered that the political side has become one of the great weaknesses for Mexico’s economic prospects.
The recent electoral reform that undermines the administrative strength and scope of the National Electoral Institute, the majority of the party in power within Congress and the popularity of President López Obrador are factors that generate uncertainty about the direction of the country.
Fitch is the rating agency where Mexico has the weakest Investment Grade, in the first rung.
