Economia

Sovereigns 
Full Rating Report 

Mexico 
Rating Rationale

Ratings 
Foreign Currency
Long‐Term IDR Short‐Term IDR BBB F2

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Local Currency
Long‐Term IDR Country Ceiling BBB+ A‐ 

Fitch Ratings affirmed Mexico’s sovereign ratings on 12 January 2011. The country’s investment‐grade ratings are underpinned by its disciplined macroeconomic policies, a relatively robust bankingsector, resilient external accounts, a modest external debt burden, and the sovereign’s manageable external amortisation profile. These strengths sufficiently counterbalance the structural weaknesses in Mexico’s public finances and the country’s modest growth prospects. After a steep recession in 2009, Mexico’s economy has been recovering, with real GDP growth estimated by Fitch to have reached closeto 5% in 2010. However, Mexico’s five‐year GDP growth average of 1.7% barely exceeds the five‐year average population growth of 1%, highlighting the importance of achieving a higher growth trajectory in the medium term. Economic recovery in 2010 was aided by the favourable external trade performance. However, despite the supportive economic policies and job creation, domestic demand conditionsremain relatively subdued. The rising wave of drug‐related violence appears to be dampening confidence, investment and economic activity. Fiscal performance continues to be in line with Fitch’s expectations and the agency expects the general government debt burden to remain close to 40% of GDP, in line with the peer median. Fiscal performance has been boosted by the economic recovery and the taxreform approved in 2009. Elevated oil prices and a gradual stabilisation in oil output are providing some fiscal flexibility to authorities to consolidate fiscal accounts. However, the limited resources in the Mexican government’s Oil Stabilization Fund (OSF) leave the country’s public finances vulnerable to swings in oil income, which represents over 30% of total public sector revenue.Moreover, the political window to further enhance the non‐oil tax base or to pass material structural reforms is narrowing owing to the several state elections in 2011 and the presidential election in 2012. Mexico’s external accounts are not a source of significant vulnerability as the current account deficit is small and a large proportion of it is covered by foreign direct investment (FDI) flows.Moreover, Mexico continues to have access to the IMF’s Flexible Credit Line (FCL) in case the external conditions deteriorate markedly and unexpectedly. More importantly, the Mexican authorities are appropriately exploiting the opportunity provided by increased capital inflows to the country by building international reserves to strengthen their capacity to face future external shocks. 

Outlooks Foreign‐Currency Long‐Term IDR Stable Local‐Currency Long‐Term IDR Stable 

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Financial Data 
Mexico 
2009 GDP GDP per head (USD 000) Population (m) International reserves Net external debt (% GDP) Central government total debt (% GDP) CG foreign‐currency debt CG domestically issued debt (MXPbn) 875.1 8 109.6 99.9 ‐0.5 35.1 48.7 3,518.9 

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Analysts 
Shelly Shetty +1 212 9080324 shelly.shetty@fitchratings.com Jaime Reusche +1 212 908 0858 jaime.reusche@fitchratings.com 

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Related Research 
Applicable Criteria
· Sovereign Rating Methodology (August 2010)

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Other Research
· Global Economic Outlook (December 2010) · Sovereign Review and Outlook (December 2010) · Guide to Sovereign Credit Report (October 2008)

Key Rating Drivers
· Sustained higheconomic growth, greater fiscal flexibility and a significant improvement in the external liquidity ratio, would be positive for creditworthiness. Improvement in the outlook for the oil sector would also be viewed positively. Although not Fitch’s base case, the agency would view significant fiscal deterioration or renewed economic weakness that undermines public debt dynamics negatively. 

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