Major financial analysis company warns Mexico about credit rating cut

13:19, December 15, 2009      

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Standard and Poor's, one of the world's biggest financial analysis companies, warned the Mexican government Monday about its credit rating cut due to slow financial growth and falling oil income.

"Recent steps to raise non-oil revenues and improve efficiencies in the economy will likely be insufficient to compensate for the weakening of its fiscal profile," the company's analyst Lisa Schineller said.

"Ratings could come under pressure if the recently passed tax measures fail to generate sufficient revenues to offset lower oil revenue," Schineller added.

Lower ratings mean that Mexico will find it harder to get overseas investors to buy government debt, making it even more important for the nation to fund itself via taxes rather than oil, which currently accounts for around 40 percent of income and has historically averaged 35 percent, according to the firm.

"Many exemptions in the tax regime weaken its capacity to contain fiscal pressures from diminished oil production," Schineller explained.

Some of Mexico's top firms pay little if any taxes, a policy implemented in the 1970s just after the nation had found one of the world's biggest oil fields. The reserves of oil in Cantarell, the largest oil field in Mexico, have begun to decline sharply since 2004.

Mexico remains one of the few nations in Latin America to have investment grade ratings from three major ratings companies. The vast majority of investors can only buy securities that have investment grade ratings.

Source: Xinhua
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