Thursday, December 9

Mexico government bond: With a stable outlook

by Jrg Billina, Euro am Sonntag

The gold leaf-covered monument El ngel de la Independencia in Mexico City commemorates the end of colonial rule in Spain. Another powerful symbol of Mexico’s independence for a long time was the state-owned company Pemex (Petrleos Mexicanos), founded in 1938. Alongside Amrica Movil, the giant is one of the leading companies in the country. It is also an important currency earner. However, Pemex is also deep in the grave. At the end of the second quarter of the current year, the debt was the equivalent of over 100 billion euros.

Pemex is relieved

One reason for the financial imbalance of the state company is the high tax burden. Despite heavy losses, Pemex transferred over 26 billion euros to the tax authorities last year. Too much – the left-wing government of President Andrs Manuel Lpez Obrador has now recognized that. It has relieved Pemex, the tax burden has been reduced from 28 to 17 percent. The government also pledged financial support to Pemex. Among other things, it uses loans from the International Monetary Fund for this purpose.

The support for Pemex does not have to make creditors of the government bond, which runs until 2031 (see below), nervous, even if Mexico’s budget deficit has now risen to over 17 percent. Solvency remains secure. S&P continues to rate the country’s credit rating as “BBB” and the outlook is stable.

Hardly any corona issues

On the one hand, the oil price, which has risen sharply compared to 2020, is reassuring. In the past two quarters, Pemex has returned to profit. On the other hand, Finance Minister Rogelio Ramrez de la O is highly motivated to close tax loopholes. Above all, however, Mexico’s national debt, at 54 percent of gross domestic product, is rather low compared to many other countries. Brazil’s debt is 98 percent, Argentina 103 percent.

Mexico’s liabilities have not increased much during the pandemic. The government has hardly raised any money to cushion the economic consequences of Covid-19. Instead, it has counted on the positive effects of the US stimulus package. These are noticeable, the economy is growing again.

After a slump of eight percent last year, the government expects an increase of five percent in 2021 and three percent in the coming year. In the long run, however, the strong dependency on the neighboring country is dangerous. Investors would appreciate it if future Mexican governments tackle structural reforms, stimulate domestic demand and open up new export markets.

Mexico bond: The government bond is quoted in US dollars, so investors are taking a currency risk. No rating pressure.


Bildquellen: Bryan Busovicki /, Byelikova Oksana /