By Daniel Bases and Alexandra Alper
NEW YORK/MEXICO CITY Dec 19 Standard & Poor's
on Thursday raised its sovereign long-term foreign currency
credit rating for Mexico by one notch to BBB-plus days after the
country approved the biggest shake-up of its energy sector since
1938 in a bid to boost growth.
The upgrade, which moves Mexico higher into investment-grade
territory with a stable outlook, brings S&P in line with both
Moody's Investors Service's Baa1 rating with a stable outlook
and Fitch Ratings' BBB-plus with a stable outlook.
Calling the government's energy reform to open up Mexico's
75-year-old oil and gas monopoly to private investment "a
watershed moment," S&P said Mexico's prospects were brightening.
"It's hard to ignore such a significant change that can make
a meaningful change for the growth outlook," S&P sovereign
credit analyst Lisa Schineller said.
The energy reform, supported by changes in the tax
framework, bolstered Mexico's growth potential and fiscal
flexibility in the medium term, S&P said in a statement.
The radical shake-up of the energy sector is the cornerstone
of a raft of reforms championed by President Enrique Pena Nieto
aimed at boosting growth in Latin America's No. 2 economy, which
has long lagged emerging market peers.
Pena Nieto has overseen passage of laws to overhaul the
education system, boost competition in telecommunications, spur
lending, and increase a weak tax take, partly to ease the fiscal
burden on ailing state oil giant Pemex.
"Tapping into Mexico's vast oil potential should energize
investment and growth throughout the economy, but we also
believe that we won't see its tangible effects on economic
activity for a number of years," it added.
S&P said Mexico's rating reflects a track record of
"cautious" fiscal and monetary policies that have resulted in
low government deficits and inflation, bolstered economic
resilience, and contained fiscal and external debt levels.
The rating, however, remains constrained by limited fiscal
flexibility and moderate trend economic growth in Mexico.
Mexican growth contracted in the second quarter on weak
government spending and a sagging construction sector but
rebounded in the third quarter as exports picked up.
S&P expects real GDP growth of 3 percent in 2014 and 3.5
percent in 2015, up from 1.2 percent in 2013.
Mexico has also struggled to boost its tax take, which
remains the weakest in the 34-nation Organisation for Economic
Co-operation and Development.
The finance ministry welcomed the upgrade, saying it would
"benefit the federal government, the private sector and Mexican
families by lowering financing costs."
The peso pared losses after the news.
Still, Rafael Camarena, an economist at Santander, said it
was unclear whether the energy reform would end up lifting
Mexico's rating into "A" territory.
A Mexico City-based fund manager who was not authorized to
speak on the record said the move might encourage more
participation from international investors.
That would be welcome, he said, "because there's going to be
more debt next year and there are not many long-term investors
The government plans to run a budget deficit of 1.5 percent
of GDP next year, up from a 0.4 percent deficit this year, as it
boosts spending to shore up the tepid recovery.
On Thursday, the finance ministry released its latest
capital market issuance plan, which foresees increasing debt
sales in the first quarter of next year.