Mexico · ECONOMY

Mexico’s credit rating is under renewed scrutiny. The warning centers on Pemex debt and the 2027 budget.

A Pemex filling station at night. Mexico’s investment grade is under fresh scrutiny, with Pemex debt at the centre. (Photo: The Rio Times archive.)

Mexico’s investment grade faces a fresh warning from rating agencies. The concern centers on Pemex debt and the 2027 budget.

The Warning

In late August and early September 2026, Mexico’s investment grade came under renewed scrutiny. The Centro de Estudios Económicos del Sector Privado (CEESP), a private-sector research center, flagged the risks on August 31.

CEESP is linked to the Consejo Coordinador Empresarial, Mexico’s main business lobby. It regularly reviews public finances and flags fiscal risks to policymakers.

CEESP reported that Mexico’s public deficit surged 36% year-on-year to MXN 559 billion (US$32.98 billion) in the first half of 2026. This highlights fiscal risks and the need for adjustment to stabilize debt.

What CEESP Found

CEESP said government revenue grew only 0.1% in real terms in the first half of 2026. Spending rose 2.1% over the same period, widening the gap.

The group put Pemex’s financial debt at close to MXN 1.4 trillion (US$82.60 billion) by mid-2026. It said the federal government has provided about MXN 495 billion (US$29.20 billion) in support since late 2024.

CEESP warned that public debt could reach MXN 21.8 trillion (US$1.29 trillion) by 2027 if trends continue. It urged the 2027 budget to use realistic growth assumptions.

Rating Agencies’ Stance

Moody’s Ratings downgraded Mexico’s sovereign rating from Baa2 to Baa3 on May 20, 2026, with a stable outlook. This left Mexico at the last rung of investment grade.

S&P Global Ratings revised Mexico’s outlook from stable to negative on May 12, 2026. It affirmed the BBB rating, two notches above speculative grade.

Fitch Ratings maintains Mexico at BBB-, the lowest investment-grade level, with a stable outlook. It last reaffirmed that stance in July 2026.

What the Ratings Mean

A credit rating grades how likely a borrower is to repay its debts on time. Investment grade means low risk; speculative grade, often called junk, means higher risk.

Moody’s, S&P, and Fitch are the three largest credit rating agencies. Many large investment funds are required to hold only investment-grade bonds.

Mexico’s Baa3, BBB, and BBB- grades sit one or two steps above junk. That leaves little room for further fiscal slippage.

Specific Risks Named

Moody’s cited low growth, rigid public spending, persistent fiscal deficits, and continued support to Pemex. The state oil company’s contingent liabilities could pressure the rating downward.

S&P pointed to slow fiscal consolidation and risks from higher debt and Pemex support. Fitch warned of potential loss of investment grade if the fiscal deficit is not reduced.

Shelly Shetty, Fitch’s global head of sovereign ratings for the Americas, said Mexico ‘still has characteristics of an investment-grade issuer’. She added that fiscal trends will be critical to keeping that status.

Pemex’s Burden

Pemex received about US$35 billion in government support in 2025, equal to 1.9% of GDP, Moody’s says. The government has budgeted a further US$14 billion for Pemex in 2026.

Pemex is likely to keep depending on federal resources or fresh borrowing, Moody’s warns. The company’s own credit rating remains several notches below Mexico’s sovereign grade.

The Debt Outlook

Moody’s forecasts that Mexico’s federal government debt could approach 55% of GDP by 2028. Renzo Merino, a Moody’s senior credit analyst, said this is the base-case scenario.

The agency also expects persistent fiscal deficits of around 4.8% of GDP. Rigid redistributive spending and continued Pemex support are key factors.

Fiscal Deficit Numbers

Mexico’s public sector borrowing requirement, known as RFSP, fell from 5.8% of GDP in 2024 to 4.3% in 2025. The target is 4.1% for 2026 and 3.5% for 2027.

Private-sector estimates from Finamex put the borrowing requirement at 4.4% of GDP in 2026 and 3.8% in 2027. These are slightly above government targets.

The finance ministry’s Pre-Criterios Generales de Política Económica sets a 3.5% deficit target for 2027. But Banamex warns this appears difficult to reach.

The Banco de México building in Mexico City. Rating agencies are watching the 2027 budget. (Photo: The Rio Times archive.)

Hacienda’s Response

President Sheinbaum addressed the concerns in her September 1 government report. She promised the 2027 package would be ‘responsible’ and ensure ‘gradual fiscal consolidation’.

She said recovering the state’s economic role ‘does not mean abandoning fiscal discipline’. Sheinbaum pledged not to cut investment, health, education, or welfare spending.

Hacienda has not issued a point-by-point response to CEESP’s warnings. But officials have stressed their continued commitment to fiscal discipline.

The Bond Market Reaction

Bloomberg reported in late August 2026 that Mexican sovereign bonds were trading at yields comparable to speculative-grade debt. This happened even though Mexico still holds investment grade at all three agencies.

Mexico’s five-year credit-default swaps traded around 80 points in late August. That gauge of default risk has improved even as bond yields flash warning signs.

The spread on Pemex’s 10-year bond over Mexican sovereign debt has narrowed by 136 points since mid-2025. It stood at about 355 points in 2026, reflecting confidence in state support.

What Analysts Say

Analysts at Banamex say a slower fiscal adjustment could threaten Mexico’s sovereign credit ratings. They also warn of risks to domestic growth.

CEESP says the 2027 budget must address public debt, low growth, and Pemex pressure. The budget package is due in the coming months.

What Losing Investment Grade Would Cost

Banamex estimates that losing investment grade could trigger about US$28 billion in automatic bond sales. Index-tracking funds that must hold only investment-grade debt would be forced to sell.

That kind of selling could add pressure on the peso, Banamex says. A World Bank study found borrowing costs rise by up to 138 points on average after a downgrade.

The Path Forward

Mexico remains investment grade at all three major agencies. But the margin is thin, and the 2027 budget is a critical test.

Reducing the fiscal deficit is vital to safeguard investment-grade status. The government’s ability to meet its targets will be closely watched.

A downgrade to speculative grade would raise borrowing costs and could hurt the peso. For investors, it would mean higher risk and potentially higher returns.

Who Is Affected

Everyday people feel this through public services. If the government has less money, it might cut spending on things like roads, schools, or health care.

Businesses also worry because higher debt can lead to higher taxes or less government support. This can slow down the economy and affect jobs.

Frequently Asked Questions

What is Mexico’s current investment grade rating?

Moody’s rates Mexico Baa3, Fitch BBB-, and S&P BBB with a negative outlook. All are at or near the lowest investment-grade level.

Why is Mexico’s investment grade under warning?

Rating agencies cite high fiscal deficits, growing public debt, and continued support for Pemex. The 2027 budget is a key risk.

What would happen if Mexico loses investment grade?

Mexico would face higher borrowing costs and some investors would be forced to sell. This could hurt the peso and economic growth.

When will the 2027 budget be presented?

The 2027 Economic Package is expected in September 2026. It must show credible fiscal consolidation to protect the rating.

Sources: Mexico Business News; Expansión; El País; El Financiero; CEESP; Moody’s; S&P; Fitch; El Economista; Mundo Fiscal; Bloomberg; World Bank; The Rio Times.