Moody’s Cuts Mexico to Baa3, the Last Rung of Investment Grade
Mexico · Markets
Key Facts
—The cut: Moody’s lowered the Mexico credit rating to Baa3 from Baa2 on May 20, the last rung of investment grade, one step above speculative status.
—The outlook: the agency shifted the outlook from negative to stable, signalling no further change is likely over the next 18 months.
—The reason: Moody’s cited a sustained weakening of public finances since 2024, rising debt and the cost of continued support for state oil firm Pemex.
—The Pemex bill: the government channelled about $35 billion to Pemex in 2025, roughly 1.9% of GDP, and budgeted $14 billion more for 2026.
—The growth call: Moody’s now sees Mexico’s economy expanding less than 1% in 2026 and 1.3% in 2027, weighed by insecurity, informality and trade-deal uncertainty.
—The context: it is Moody’s first cut since 2022, and follows S&P’s move days earlier to lower the outlook on Pemex and the state power utility.
Mexico has slipped to the bottom edge of investment grade. The downgrade puts the cost of propping up Pemex and a widening fiscal gap at the centre of the country’s credit story.
What did the Mexico credit rating cut involve?
The Rio Times, the Latin American financial news outlet, reports that the Mexico credit rating was lowered by Moody’s to Baa3 from Baa2 on May 20, the last rung of investment grade. The agency at the same time shifted its outlook from negative to stable, signalling it does not expect a further change over the next 18 months.
The move leaves Mexico one notch above speculative, or “junk,” territory. The Finance Ministry framed the stable outlook as confirmation of the country’s macroeconomic strength and the size and diversification of its economy.
Why did Moody’s downgrade Mexico?
Moody’s cited a sustained weakening of public finances that accelerated from 2024, driven by rigid spending, a limited revenue base and the continued cost of supporting Pemex. Those factors, it said, have constrained the government’s ability to stabilise debt in a low-growth environment.
The agency noted that priorities such as energy sovereignty and a redistributive spending model have weakened the pillars of fiscal policy. It also flagged structural drags including insecurity, informality, and energy and water bottlenecks.
How big is the Pemex burden?
The government directed about $35 billion to Pemex in 2025, equivalent to roughly 1.9% of GDP, and budgeted a further $14 billion for 2026. Moody’s expects more support in coming years absent a material improvement in the oil company’s operations.
Pemex remains the world’s most indebted oil company, with output stuck well below target. The recurring transfers crowd out productive investment and tie the sovereign’s fiscal health closely to the firm’s troubled finances.
Why does it matter for investors?
A Baa3 rating leaves Mexico exposed: a further downgrade would push it below investment grade, and some international funds can only hold investment-grade debt, raising the risk of forced selling. The shift to a stable outlook tempers that risk for now.
The downgrade is Moody‘s first since 2022 and follows S&P’s decision days earlier to lower the outlook on Pemex and the state power utility. Moody’s stressed that Mexico still benefits from preferential access to the US market and a sizeable, diversified economy.
What should investors and analysts watch next?
- The deficit path: whether the government narrows the fiscal gap as promised.
- Pemex transfers: the size of further support and any operational turnaround.
- Other agencies: whether S&P or Fitch follow with their own actions.
- Trade-deal review: how the US-Mexico-Canada agreement revision affects the outlook.
- Bond flows: whether the cut triggers any repositioning in Mexican debt.
Frequently Asked Questions
What is Mexico’s new rating?
Moody’s lowered Mexico to Baa3 from Baa2 on May 20, the last rung of investment grade, one step above speculative status, while shifting the outlook from negative to stable.
Why did Moody’s cut the rating?
It cited a sustained weakening of public finances since 2024, rising debt and the cost of continued support for state oil firm Pemex, alongside a low-growth outlook.
How much is Mexico spending on Pemex?
The government channelled about $35 billion to Pemex in 2025, roughly 1.9% of GDP, and budgeted $14 billion more for 2026, with Moody’s expecting further support.
Is Mexico still investment grade?
Yes. Baa3 keeps Mexico within investment grade, but at the lowest rung, one notch above speculative territory. A further cut would push it below the threshold.
When was the last Moody’s cut?
It is Moody’s first downgrade of Mexico since July 2022, when the rating fell from Baa1 to Baa2. The latest move follows S&P’s decision days earlier to cut the outlook on Pemex.
Connected Coverage
The cut follows the ratings pressure traced when Mexico changed Pemex’s CEO days after the S&P outlook cut. It deepens the strain mapped in how Mexico’s government debt crossed 60% of GDP, within the wider picture in our guide to Mexico’s 2026 economy.
Reported by Sofia Gabriela Martinez for The Rio Times — Latin American financial news. Filed May 20, 2026 — 22:00 BRT.
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