Mexico has to contain drug violence, improve competitiveness and stay on the budget straight and narrow to keep its good standing in the eyes of global investors, a Fitch analyst said on Friday. Mexico's foreign-currency debt rating was "fairly well-anchored" at an investment-grade BBB and the outlook was stable, said Shelly Shetty, who heads sovereign ratings at rating agency Fitch for Latin America.
But she said Mexico had work to do to control violence from a war against drug cartels, which has killed 42,000 people since late 2006, and make sure its budget remained sound. Mexico is heavily reliant on oil income, which provides about a third of its revenue, and Shetty said the upcoming 2012 budget would be key.
"Slowing growth affects revenue growth, but one has to keep an eye on oil prices because a nose dive in oil prices can obviously put additional pressures on public finances," she said in a telephone interview. Mexico had a sound fiscal framework in place and the budget due to be presented to lawmakers by September 8 would show which path Mexico planned to follow.
"We would want to see what the plans might be for strengthening the fiscal account in the interim, including the growth potential of Mexico," she said. "Clearly while Mexico has recovered (from the 2009 recession), with the US in a very tepid growth cycle it implies that Mexico will have to continue improving its competitiveness to gain a healthy growth rate."
Mexico's economy leans heavily on the United States, and worries over a recession north of the border have caused some analysts to worry about slowing economic growth in Mexico. Shetty said Fitch, which joined Standard & Poor's in downgrading Mexico's debt rating in late 2009, was watching drug-related violence closely. "Clearly we have to keep an eye on it. The way we look at it is to see if this is meaningfully or materially negatively affecting economic growth or foreign direct investment in the country," she said.