Rating action and scope
Moody's Ratings downgraded Mexico's long-term local- and foreign-currency issuer rating and senior unsecured rating to Baa3 from Baa2 on Tuesday, and shifted the outlook from negative to stable. The agency applied the same downgrade to the country's senior unsecured shelf and MTN program ratings, lowering them to (P)Baa3 from (P)Baa2.
Fiscal dynamics behind the downgrade
The downgrade reflects what Moody's describes as a sustained weakening of Mexico's fiscal strength that accelerated in 2024 and is expected to continue. The agency pointed to a combination of rigid spending commitments, a narrow revenue base and continued transfers and support to Petroleos Mexicanos - commonly referred to as PEMEX - as factors that constrain the government's capacity to stabilize public debt in a low-growth environment.
Moody's highlights that Mexico's fiscal deficit remained elevated at almost 5% of GDP in 2025, only modestly lower than the 5.3% recorded in 2024. This has pushed government gross debt up to 49.3% of GDP in 2025 from 46.0% in 2024 and 39.8% in 2023. The agency expects the combined deficit of the federal government plus social security to remain above 4% of GDP in 2026-27, which would drive the debt ratio toward around 55% of GDP by 2028.
Support for PEMEX and financing costs
The government provided roughly $35 billion, equivalent to 1.9% of GDP, to PEMEX in 2025 and has budgeted an additional $14 billion, or 0.7% of GDP, for 2026. Moody's said it expects further government support in coming years unless there is a material improvement in PEMEX's operational performance. That continued support, combined with higher interest rates and a heavier reliance on more costly domestic financing, has raised Mexico's interest-to-revenue ratio to about 17% - a level that Moody's notes is well above pre-pandemic readings and higher than most Baa-rated peers.
Growth outlook and policy credibility
On growth, Moody's lowered its real GDP forecast for Mexico to less than 1% in 2026 and to 1.3% in 2027. The agency's projections imply average growth of around 1% over 2024-27, which it observes is well below Mexico's long-term average of 2%. Moody's also flagged repeated deviations from fiscal rules since 2023, saying these breaches have undermined the credibility and effectiveness of fiscal policy anchors. It noted that large deficits in 2024 and 2025 exceeded fiscal targets while the debt burden continued to rise.
Why the outlook is stable
Despite the downgrade, Moody's assigned a stable outlook, reflecting its view that any further weakening in fiscal strength is likely to be gradual and could be partially offset by Mexico's macroeconomic stability, policy responsiveness and underlying economic strengths. The agency projects that economic activity will gradually recover toward a 2% trend growth rate, supported by government measures that could improve investment conditions over the coming years.
Data recap
- Ratings lowered to Baa3 from Baa2; outlook changed to stable from negative.
- Senior unsecured shelf and MTN programs cut to (P)Baa3 from (P)Baa2.
- Fiscal deficit: almost 5% of GDP in 2025 (5.3% in 2024).
- Government gross debt: 49.3% of GDP in 2025 (46.0% in 2024; 39.8% in 2023).
- Government support to PEMEX: about $35 billion (1.9% of GDP) in 2025; $14 billion (0.7% of GDP) budgeted for 2026.
- Interest-to-revenue ratio: about 17%.
- Moody's growth forecasts: less than 1% in 2026 and 1.3% in 2027; average ~1% for 2024-27 vs long-term average of 2%.
Interpretation
Moody's downgrade signals that the agency views Mexico's fiscal gap and the likelihood of ongoing state support to PEMEX as dominant constraints on creditworthiness under current policy settings and growth prospects. While the stable outlook indicates Moody's does not expect a rapid deterioration from this level, the institution's forecasts imply a path of higher debt and sustained deficits without significant fiscal consolidation or a material improvement at PEMEX.