Mexico’s debt is downgraded to just above ‘junk’

Mexico’s credit rating took another hit Monday, edging closer to “junk” status, on worries about the country’s growing budget deficit and dwindling oil revenue.

But stock and currency investors continue to give Mexico the benefit of the doubt in the short run. Some may well wonder why the country deserves a lower debt rating than Greece, given the latter’s far more desperate budget situation.

Standard & Poor’s lowered its rating on Mexico’s foreign-currency debt to BBB from BBB-plus, after a cut of the same magnitude by Fitch Ratings on Nov. 23.

If Mexico were to fall to a BB rating, its debt would be considered non-investment-grade, or junk. That would wipe out the progress the country made regaining investment-grade status early in this decade, after the financial crisis and peso devaluation of the mid-1990s.


For now, S&P said it considered Mexico’s credit status “stable,” meaning another rating cut wasn’t imminent.

Mexico has raised taxes this year to boost non-oil revenue, but the measures haven’t gone far enough given declining oil production, S&P said.

Still, S&P projects that Mexico’s budget deficit will average 3% of gross domestic product through 2011. That pales compared with Greece’s deficit, which is expected to be near 13% of GDP this year. S&P still rates Greece A-minus.

Mexican stocks briefly got hit after S&P’s announcement, but the market’s key index ended the day up 0.3%. It has surged 43% this year, compared with a 23% gain for the Standard & Poor’s 500.

The Mexican peso also strengthened Monday, pushing the dollar down to 12.73 pesos from 12.88 on Friday.