Nov. 23 (Bloomberg) -- Goldman Sachs Group Inc.’s Paulo Leme called Fitch Ratings’s downgrade of Mexico “unnecessary roughness,” saying the decision ignored the country’s efforts to stem a widening budget deficit.

“It’s what we call unnecessary roughness in American football,” Leme, Goldman’s chief Latin America economist in Miami, said in a telephone interview. He had predicted as recently as Nov. 3 that Mexico may avert a downgrade. “Everyone else in the region is experiencing deterioration in the fiscal accounts. Mexico adjusted. Were the efforts Nobel Prize-winning public finance? No. But they did a lot.”

Fitch lowered Mexico’s foreign debt rating one level today to BBB, the second-lowest investment grade, after tumbling oil output and the worst recession since the 1930s swelled the deficit. JPMorgan Chase & Co., which last week predicted the Fitch rating cut was imminent, estimates the budget gap will reach the equivalent of 2.75 percent of gross domestic product next year, the widest in two decades.

Leme said Fitch’s decision overlooked tax increases passed this month by congress as part of the 2010 budget. Lawmakers boosted the value-added tax one percentage point after rejecting a new 2 percent consumption tax proposed by President Felipe Calderon which aimed to broaden the tax base.

The downgrade is “tough because in a way it overlooks what was still a fiscal adjustment worth close to 1.9 percent of GDP in an economy experiencing a recession,” Leme said.

PRI’s ‘Awareness’

The cut was the first by Fitch since it gave Mexico an initial rating of BB in 1995 and the first by any ratings company since Standard & Poor’s lowered it in the wake of the 1994 peso devaluation.

Lawmakers may approve more tax increases next year, Leme said. The Institutional Revolutionary Party, known as the PRI, is the largest in the lower house of Congress and leads polls ahead of the 2012 presidential election.

“It was a highly unsatisfactory outcome for most political actors involved,” Leme said. “There’s an awareness in the PRI that they will most likely inherit the economy in 2012 and they know they need to have something more robust.”

Mexico’s $1.09 trillion economy will shrink as much as 7.5 percent this year, the most since the 1930s, according to the central bank. Oil, which funds 38 percent of Mexico’s budget, has fallen 47 percent from a high of $147.27 a barrel in July 2008. Output at state-owned Petroleos Mexicanos fell last year at the fastest rate since 1942, costing Mexico 300 billion pesos ($23 billion) in lost revenue, according to Finance Minister Agustin Carstens.

To contact the reporter on this story: Jens Erik Gould in Mexico City at jgould9@bloomberg.net;

Last Updated: November 23, 2009 16:26 EST