MEXICO CITY (Reuters) - Mexico's outlook was moved to negative from stable by Moody's (NYSE:MCO) Ratings on Thursday, as the major credit rating agency pointed to institutional and policy weakening that risks undermining the economy as well as government accounts.
In describing its outlook downgrade, Moody's highlighted growing government spending, especially a wider fiscal deficit, as well as the recently-enacted constitutional overhaul of the judiciary that risks "eroding checks and balances."
Moody's flagged it was particularly concerned the overhaul of the judiciary could sap economic and fiscal strength.
"While our assessment of the quality of institutions in Mexico is already low compared to rating peers, particularly when it comes to rule of law and control of corruption, we will assess whether a further deterioration in the policymaking framework and the independence of the judicial system could limit the government's ability to address rising credit challenges," Moody's said in a statement.
It also cited "contingent liabilities" stemming from heavily-indebted state-owned oil company Pemex that could complicate the government's balance sheet.
In its mixed assessment of the Mexican economy, which it described as benefiting from factors including macroeconomic stability pursued by the central bank, the credit rating agency affirmed Mexico's sovereign debt ratings with no changes at Baa2.
Those ratings, it argued, benefit from "robust economic strength that will continue to be supported by the diversity of the economy, as well as by potential benefits of nearshoring."
Mexico's finance ministry pushed back on the outlook downgrade, saying the ratings agency lacked information on its proposed 2025 budget, which it is set to present to Congress on Friday, as well as the government's planned fiscal policy and economic projections for next year.
"This situation suggests that Moody's analysis and outlook could have benefited from a more detailed and updated assessment," the ministry said in a statement.
Fellow agency S&P Global Ratings on Tuesday said it expects Mexico to continue its cautious macroeconomic management over the coming two years, while warning of potential challenges to Latin America's second-largest economy, including trade with the United States.
S&P warned it could lower its current "BBB" rating for Mexico if government debt and fiscal deficits worsen, and that it was also keeping a close eye on extraordinary support for Pemex and state-run power firm CFE (EBR:CFEB).