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Mexico - September 2021

Economic Highlights

MEXICO | States under financial pressure, Moody’s warns. On 23 August, the international credit ratings agency Moody’s Investors Service issued a note warning of increased “budgetary pressures” on Mexican states due to public health spending related to the coronavirus (Covid-19) pandemic. The governments of Mexican states which have a ‘Baa1’ rating (moderate credit risk) with a ‘negative’ outlook were already facing “declining or stagnant revenues” when the additional pressures from Covid-19 emerged. The increase in “unallocated public health spending” varied across Mexico, with larger increases in some states “reflecting pressure to respond to the pandemic at the regional level”. Moody’s notes that states’ public health expenses, combined with the extension of subsidies and tax benefits to stimulate regional economies, became a key driver in the widening federal fiscal deficit of 2020. Despite plans to cut health-related expenditures in 2021, Moody’s notes that the emergence of Covid-19 variants of concern and unequal vaccination rate in different states may force some to increase health spending again. In a subsequent report published on 1 September, the ratings agency further warns that “Mexican states will face a prolonged and uneven economic recovery”.

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