Mexico’s Credit Outlook Downgraded to Negative by Moody’s

The credit outlook of Mexico, Latin America’s second-biggest economy, was downgraded to negative from stable on Thursday by Moody’s, a major credit rating agency.

Why Did Mexico’s Credit Outlook Slip?

Moody’s linked Mexico’s credit outlook downgrade to the nation’s government debt and the constitutional overhaul of its judiciary system.

The rating agency said, “Deteriorating debt affordability and further government spending rigidity make fiscal consolidation challenging, following this year’s widening in the government deficit, a deviation from a longstanding track record of low deficits regardless of economic pressures.”

“At the same time, the constitutional overhaul risks eroding checks and balances of the country’s judiciary system, with potential negative impact to Mexico’s economic and fiscal strength,” Moody’s continued, adding the changes “have the potential to materially alter the checks and balances and the business operating environment in the country.”

Based on that and other factors, the Mexican peso has lowered in value to roughly 20.50 to $1 in recent days.

What Happened to The Courts in Mexico?

The Mexican government recently approved changes to the judiciary that will make all federal judges stand for election in 2025 and 2026.

The judicial overhaul was pushed by former Mexican President Andrés Manuel López Obrador, who frequently clashed with Mexico’s Supreme Court.

Newly elected President Claudia Sheinbaum, who was mentored by López Obrador, said the initiative will rid the courts of corruption, while critics say it will politicize the judicial system and threaten Mexico’s democracy.

President Sheinbaum Lashes Out at Moody’s

Sheinbaum said Friday that rating agencies often have a “bias of origin” against the economic policies passed by the ruling Morena party under López Obrador, who was president from December 2018 to September 2024.

“Many times these ratings agencies are aimed at issuing evaluations starting from an economic model,” Sheinbaum said. “Starting in 2018, the economic model in our country changed. Many times these ratings have this bias of origin.”

The Mexican government began transferring large amounts of money to state-run oil company Pemex, started large building projects and implemented cash handout programs under Sheinbaum’s predecessor.

That led to federal budget deficits of roughly 6 percent of Mexico’s gross domestic product (GDP) in 2024. Government deficits are expected to continue at somewhat lower levels in 2025.

Meanwhile, Moody’s mentioned the possibility that the Mexican government will have to transfer more money to support highly indebted Pemex.

This article includes reporting from The Associated Press.