Fiscal consolidation will be a key challenge for Claudia Sheinbaum’s administration because the deficit will increase substantially, Fitch warned.
He said that political and fiscal strategies, as well as the changes proposed by the next government, will be crucial for Mexico’s sovereign debt rating.
Sheinbaum has stated that she will prioritize consistent deficit reduction as the economy grows, but her intention to propose reforms that would increase revenue is unclear, Fitch said.
The firm expects a gradual increase in debt to more than 51 percent of gross domestic product (GDP) due to higher primary deficits, high borrowing costs and moderate GDP growth, which will average 2 percent in 2024-2026.
In his special report Agenda, challenges and opportunities of President-elect Sheinbaum of Mexico, The rating agency warned that while fiscal savings from transition spending items will be insufficient to align the deficit with historical averages, the 2025 Expenditure Budget will provide clarity to the fiscal objectives of the new administration.
Regarding Petróleos Mexicanos (Pemex), Fitch stressed that Sheinbaum will maintain her commitment to supporting the company, which is now a fiscal burden.
Regarding the six constitutional reforms proposed by President Andrés Manuel López Obrador, including the judicial reform, Fitch highlighted that they will affect Mexico’s institutional profile.
We believe that the proposed reforms would negatively affect Mexico’s overall institutional profile, but the severity of their impact could become clearer once they are approved and implemented.
He added that weak governance indicators already constrain the sovereign rating and are only partially offset by a track record of prudent, credible and consistent macroeconomic policy.