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Fitch Ratings downgraded its outlook for Mexico’s sovereign debt on Wednesday with the catalyst the decision by president-elect Andrés Manuel López Obrador to cancel a $13bn new airport project this week.

Mexico Obrador

Mexico affirmed BBB+ but outlook lowered to negative from stable.

Fitch said the cancellation raised the risk of policy uncertainty under the incoming administration.  The move follows the decision on Monday  when Mr López Obrador decided on Monday to scrap plans for an airport in Mexico City.The decision to cancel the project, which is already one-third of the way complete, has raised concerns over the strength of the rule of law in doing business and whether the new administration will respect long-term contracts.

The peso fell a further  2.1% to 20.39 per dollar on the news. 

Fitch Statement Highlights

“While Fitch expects the incoming administration to continue to embrace the core aspects of the macro policy framework — budget discipline and the autonomy of the Banco de Mexico, downside risks related to the incoming administration’s fiscal stance persis.,” 

“Moreover, there are risks that the follow-through on previously approved reforms, for example in the energy sector, could stall, and that other policy proposals result in lower investment and growth than currently expected. The decision to cancel the construction of a new airport for Mexico City sends a negative signal to investors. Proposals for large capital investments by state-owned oil company Pemex, whose balance sheet and standalone creditworthiness have been under pressure (resulting in Fitch revising the Outlook on the company’s rating to Negative), add to the growing risk related to contingent liabilities for the sovereign.”

 

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