Standard & Poor's raises Mexico's long-term debt rating to BBB+

This represents the second increase in less than a month

The Ministry of Finance and Public Credit (SHCP) reported that the rating agency Standard & Poor's (S&P) revised upwards Mexico's sovereign debt ratings denominated in foreign currency from BBB to BBB+, with a stable outlook.

S&P also raised the rating of long-term debt denominated in local currency from A to A+ and the rating of short-term debt denominated in foreign currency from A-3 to A-2, but kept the rating of short-term debt denominated in local currency stable at A-1.

In a statement sent today to the Mexican Stock Exchange, S&P credit analyst Joydeep Mukherji argued that the upward revision reflects "the expected strengthening of tax revenues" in the coming years, as well as signs of "renewed political dynamism" that reduces the risk of a "paralysis" of policies in Mexico.

It also notes that the recent approval of tax reform in Mexico on September 14 "is an important step to reduce fiscal vulnerability" to volatile oil prices and growing spending pressures.
Mukherji also highlighted that it sends "a positive signal about the capacity of Mexico's political leadership" to reach agreements on key issues for the country.
According to S&P, thanks to the new tax reform, tax revenue will increase by 1,1% of Gross Domestic Product (GDP) in 2008, and eventually by 2,1% by 2012, mainly due to higher income tax collection.
That law creates, among other things, a Single Rate Business Tax (IETU) of 16,5%, which will gradually increase to 17,5%, one of 2% on cash deposits over 25.000 pesos (about 2.270 dollars) and another of 5,5% on gasoline, as well as a new tax regime for the state-owned company Petróleos Mexicanos (Pemex).

S&P stated that Mexico's ratings remain with a "stable outlook" because the rating agency believes that the current uncertainty in international financial markets "will not have a significant adverse impact on Mexico's macroeconomic stability."

S&P's decision follows that of the international risk measurement agency Fitch Ratings, which on September 19 also raised Mexico's long-term foreign currency sovereign debt rating from "BBB" to "BBB+".
However, Moody's recently ruled out changing its rating of Mexico, currently at Baa1, the eighth on a scale of ten, because it believes that the approved tax reform does not increase the country's revenue-collecting capacity.

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