Budget deficit, Pemex debt hurdles for Mexico’s new administration: Fitch

ISTANBUL

A high budget deficit and state-owned petroleum firm Pemex's debt are key challenges for the new administration in Mexico, Fitch Ratings said Monday.

"The 2024 budget presented a fiscal deficit above 5% of GDP, its highest point in over three decades," it said in a statement.

"The challenging fiscal position inherited by the incoming administration follows a combination of rising social spending, higher borrowing costs and high investment due to the completion of priority infrastructure projects of the outgoing administration," it added.

Fitch said it expects general government debt to rise to 48.8% of GDP this year from 45.6%.

"While the incoming administration has signaled willingness to narrow the deficit to levels consistent with a stable debt/GDP trajectory, uncertainty remains on how this will be achieved. Political appetite for a reform to improve tax collection remains unclear," it said.

Pemex’s debt, which is equivalent to almost 6% of GDP, remains "a material contingent liability" for Mexico, according to the rating agency.

Mexico's federal government has provided support of nearly $70 billion, or 4% of GDP in 2023, over the past five years, absorbing the oil company’s debt into its own balance sheet, it said.

"The incoming administration has advocated for maintaining Pemex’s large role in the country’s oil market, which will entail continued federal government transfers absent meaningful improvements to the company’s operating efficiency," it added.

Fitch said it estimates Mexico's economic growth moderating to 2.2% this year from 3.2% last year and further slowing to 2% in 2025.

Claudia Sheinbaum, the candidate for the ruling National Regeneration Movement (Morena) party, emerged as the winner of Mexico’s elections on Sunday and has become the nation's first female president-elect.