Feb 28 - Mexico's credit trajectory will be influenced by the progress the
new administration makes on reforms to boost competitiveness, productivity,
economic growth and fiscal flexibility, according to a new Fitch Ratings report
published today. Improving domestic demand dynamics would be essential for
Mexico to maintain a healthy growth trajectory, given the sluggish U.S. economy.
'The labor and education reforms passed in December are steps in the right
direction to boost formal jobs, improve education standards and engender faster
productivity growth in the medium term,' said Shelly Shetty, Head of Fitch's
Latin America Sovereign Group.
'However, while the initial progress on reforms is encouraging, complicated
political negotiations lie ahead with regard to pending reforms. The content and
scope of future reforms is still uncertain making it difficult to decisively
assess the impact of future reforms on Mexico's creditworthiness,' said Shetty.
Delays are already evident for the much-needed energy reform, and political
resistance and opposition by the Pemex union may ultimately undermine the scope
of this reform. Similarly, other pending reforms may be susceptible to delays
and dilution as vested interests lobby against material changes.
High on the priority list are fiscal reforms. Revenue-enhancing measures to
reduce the current reliance on oil income and address the high levels of tax
evasion, mainly caused by significant labor informality, would allow the
government to increase expenditures without compromising fiscal responsibility.
The new administration also intends to submit reform proposals that establish
fiscal rules for states' budget balances to control debt at the local level,
which has been steadily increasing. The government also plans to promote
financial intermediation and expand the scope of development banks.
Fitch's special report 'Reforms Positive for Mexico's Creditworthiness: New
Administration on Right Path' is available at 'www.fitchratings.com'.
Additional information is available at www.fitchratings.com.