Mexico Rating Outlook Affirmed as Positive by S&P on Reforms

Standard and Poor’s kept its positive outlook on Mexico’s credit ratings on the prospect that President Enrique Pena Nieto’s economic reforms will boost growth, even as a tax overhaul is watered down.

Pena Nieto’s energy and tax bills could strengthen the country’s fiscal flexibility, S&P said. The company also affirmed its BBB/A-2 foreign currency and A-/A-2 local currency sovereign credit ratings for Mexico. The positive outlook was placed on the sovereign rating in March.

Pena Nieto has proposed breaking a 75-year state monopoly on oil drilling in order to attract companies such as Exxon Mobile Corp. to invest in Mexico. He also presented a bill last month to boost tax revenue by 2.9 percentage points of gross domestic product by 2018 in order to help wean the government off oil revenue. His party plans to water down the reform by removing taxes on items such as private education tuition and mortgage interest.

“Tapping into Mexico’s vast oil potential would energize investment and growth throughout the economy,” S&P said in a statement today. While the tax reform may not boost revenue as much as the government estimates, plans to strengthen oil stabilization funds and save more during economic upswings “could be an important step in reducing revenue volatility.”

The company forecasts Mexico’s economy will expand 1.5 percent this year and 3.2 percent in both 2014 and 2015. The net government deficit will grow to more than 3 percent of gross domestic product in 2014 from about 2 percent this year, S&P said.

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