Mexico Inches Toward Junk Status as Fiscal Math Unravels

• Mexico’s top finance executives warned Tuesday that the country risks a sovereign credit downgrade — and potentially losing investment grade entirely — if fiscal deficits are not brought under control
• Public sector borrowing hit 4.3% of GDP in 2025, above target, while the economy grew just 0.5% — a combination that is accelerating debt faster than agencies consider sustainable
• Moody’s already rates Mexico at Baa2 with negative outlook — one notch above the threshold where a downgrade by two agencies would strip the country of investment grade, triggering forced selling by institutional investors

The warning from Mexico’s Institute of Finance Executives was blunt. Gabriela Gutiérrez, president of IMEF’s national board, told reporters Tuesday that the combination of near-zero growth and fiscal deficits above 4% of GDP means Mexico is approaching the leverage limits that credit rating agencies consider manageable. Unless the deficit falls to 3.5% of GDP, she said, a one-notch downgrade from two agencies that already rate Mexico at the second-lowest investment grade level is a realistic scenario — and the longer-term risk is a slide into speculative territory, commonly known as “junk.”

The numbers tell a clear story. Mexico’s economy, Latin America’s second-largest, grew just 0.5% in 2025 — down from 1.4% the year before and far below the 1.8%-2.8% range the government had projected for this period. Public sector borrowing requirements hit 4.3% of GDP, above the 3.9% target President Claudia Sheinbaum set when she took office. Government debt has climbed to roughly 50% of GDP, up from 40% in 2023, and Moody’s projects it reaching 55% by the decade’s end.

The Pemex anchor

Much of the fiscal pressure traces back to Pemex, the state oil company whose debt Sheinbaum’s government has been absorbing. Mexico doubled its support to Pemex in the 2026 budget, allocating $14.1 billion toward debt payments. The strategy has improved Pemex’s credit rating for the first time since 2014, but at the cost of loading the sovereign balance sheet. Moody’s flagged last week that Pemex support and weak growth are delaying fiscal consolidation beyond what the agency had expected.

S&P still rates Mexico at BBB with a stable outlook, and the OECD projects 1.2% growth for 2026. But the margin for error has evaporated. U.S. tariff threats loom over Mexico’s export-dependent manufacturing sector, nearshoring investment has slowed amid uncertainty over the USMCA review, and social spending commitments — pensions, universal healthcare, new rail projects — leave little room for cuts. The path Sheinbaum inherited from her predecessor was already narrow. What IMEF is saying is that it’s about to close. This is part of The Rio Times’ daily coverage of Mexico affairs and Latin American financial news.

Deep Dive

For the complete picture, read our in-depth guide: Mexico Economy 2026: GDP, Peso, Nearshoring, Banxico and Trade

Read More from The Rio Times

• USA & Canada Intelligence Brief for Monday, April 6, 2026
• Europe Intelligence Brief for Monday, April 6, 2026
• Cuba Exile Leadership Battle Heats Up as Transition Hopes Rise