Tags: S&P | Favorable | Mexico | Credit

S&P Turns Favorable on Mexico's Sovereign Credit Outlook

Tuesday, 12 Mar 2013 03:33 PM

 

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Standard & Poor's on Tuesday revised its sovereign foreign currency credit outlook on Mexico to positive from stable, citing government efforts to implement fiscal and economic reforms.

The current rating is BBB, S&P said in a statement.

"The positive outlook reflects a greater than one-in-three chance that the government will successfully advance policies to further strengthen Mexico's fiscal room for maneuver and medium-term growth prospects - two key rating constraints," said Lisa Schineller, sovereign credit analyst at S&P.

On Monday, the government of President Enrique Pena Nieto unveiled a telecommunications reform bill to loosen the grip on the telephone sector of the world's richest man, Carlos Slim, and curb the top broadcaster, Televisa.

The move would force Slim and Emilio Azcarraga, who controls Televisa, to sell assets and allow increased foreign ownership of media and phone companies.

S&P said the ratings on Mexico reflect a cautious fiscal and monetary policy track record, which have contributed to low government deficits and inflation while also bolstering the economy's resiliency.

The fact that 35 percent of Mexico's total budgetary revenues comes from the oil sector, which makes it vulnerable to price fluctuations, is one factor constraining the rating and keeping it at the low end of investment grade.

"The president and his team suggest that their reforms will be far reaching, though details on the much-anticipated fiscal and energy measures will only be tabled in the second half of 2013," S&P said.

While Pena has political capital, S&P said, to get the reforms passed, this is not guaranteed. Successfully implementing fiscal and structural and economic reforms over the next 12 to 18 months "will be crucial for the credit rating on Mexico," the firm said.

On the positive side, earlier on Tuesday, Mexico reported industrial production rebounded more than expected in January on a strong bounce in construction after slowing the most in almost four years at the end of 2012.

© 2014 Thomson/Reuters. All rights reserved.

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