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Mexico Downgraded to Baa3 by Moody’s
May 21, 2026
Mexico was downgraded by a notch to Baa3 from Baa2 by Moody’s. The downgrade reflects a sustained deterioration in Mexico’s fiscal position, driven by rigid spending commitments, a narrow tax base, and continued financial support to the struggling state oil company Pemex. The fiscal deficit remained near 5% of GDP in 2025, pushing government debt to 49.3% of GDP, up sharply from 39.8% in 2023. Moody’s expects this debt ratio to climb toward 55% by 2028. Economic growth projections have also been cut, with GDP growth expected to average around 1% through 2027, well below Mexico’s long-term trend of 2%. This is weighed down by structural issues concerning energy, water, logistics, and security, as well as uncertainty tied to the USMCA renegotiation and domestic institutional changes including a judicial overhaul. Compounding the fiscal challenges is the erosion of policy credibility. Mexico has repeatedly missed targets under its own balanced budget and debt anchor rules since 2023. The interest-to-revenue ratio has climbed to about 17%, above most peers at the same rating level, reducing the government’s capacity to absorb shocks. Last week, S&P had revised Mexico’s outlook to negative on similar grounds.
Mexico’s dollar bonds traded stable. For instance, its 4.15% 2027s was at 99.9, yielding 4.2%.
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