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Moody’s downgrades Mexican government’s debt rating

Moody’s Investors Service downgraded Mexican government debt Friday from Baa1 to Baa2, citing concerns about debt servicing costs and Mexico’s support for the state-owned oil company. Baa2 is still one step above the lowest investment-grade rating, Baa3.

Moody’s said in a statement that Mexico’s debt affordability remains consistently weaker than that of similarly rated peers and is likely to further deteriorate given the higher interest rate environment. Mexico’s domestic inflation is current near 8%.

It also said Mexico’s fiscal prospects will be adversely affected by increased expenditure rigidity related to recurrent support to state-owned enterprises, particularly Pemex, increased pension expenditures and earmarked capital spending to flagship projects.

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President Andr s Manuel L pez Obrador’s centerpiece policy is to build oil refinery capacity and rail lines. He has also pledged to rescue state-owned Petroleos Mexicanos, which is heavily in debt.

Moody’s said it expects Mexico’s economy to remain constrained by weak investment prospects and increased structural rigidities. The economic scarring that took place during the pandemic will not be reversed and, consequently, there will be a persistent gap between the pre-pandemic trend level for GDP and current estimates for 2022-24.

Mexico’s Treasury Department said despite the downgrade of sovereign debt by Moody’s, Mexican government debt retains a robust place in international markets and has financial margins sufficient to handle global risk scenarios.

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