Fitch Says Mexico’s Aid to Pemex Not Enough

Fitch Ratings states Pemex needs US$81.5 billion over four years. Mexico’s 2024 budget offers the oil company US$8.3 billion for immediate debts.

The budget also cuts the profit-sharing rate from 40% to 35%. Fitch calls this a positive step. Yet, even with an extra US$4 billion from 2023, it’s not enough.

The new plan would reduce Pemex’s debt to US$98 billion from US$110 billion. Still, this remains high compared to a negative US$425 million operational fund.

Fitch sees the government’s plan as more predictable support for Pemex.

However, Fitch predicts Pemex will need US$10 billion more each year. From 2024 to 2027, Pemex plans to spend US$60 billion.

Additionally, Pemex faces US$21.5 billion in debts between 2025 and 2027. In total, the firm will need another US$81.5 billion.

This means Pemex needs extra help of US$20 billion annually from 2024 to 2027. This extra aid is about 1.1% of Mexico’s 2023 GDP.

Fitch notes that the budget is not yet approved. If approved, Fitch will reevaluate its rating of Pemex.

The agency says the 2024 election will clarify Pemex’s future. After the election, the new leader’s first budget will reveal more.

Background

Pemex has historically been a cornerstone of Mexico’s economy. Yet, in recent years, the company has struggled with high debts.

Previous governments tried to reform Pemex with limited success. The global drop in oil prices also hit the company hard.

Increased competition from other energy producers has added to the challenges. Pemex also faces infrastructure and operational issues, which hinder its growth.

The company’s fiscal health is crucial for Mexico’s economic stability.

The ongoing scenario with Pemex will likely influence Mexico’s economic policies and international ratings.