Historic energy reform to strengthen Mexico's credit profile - Moody's

The congressional approval last week of a historic energy reform will strengthen Mexico's sovereign credit profile and could also help to boost its potential GDP growth rate, ratings agency Moody's said in a report.



Moody's said that it expects the comprehensive reform of the energy sector to have a significant effect on state-owned oil company Pemex and the oil industry, "attracting investment and enhancing Mexico's growth prospects over the next three to five years, all credit positives for the sovereign."



RISKS


Although prospects appear encouraging, implementation risks will pose major challenges to the energy reform, said Moody's. In addition, attempts to mobilize public opinion by the left-of-center PRD party and other groups opposed to the reform and a call for a constitutional referendum pose further risks, the agency added.



REWARDS


The extent to which the energy reform is successful will depend on how effective it is in promoting increased private investment and oil production, Moody's noted. "If the reform proves effective in this respect, we expect it to lift Mexico's potential growth to 3%-4% from its current 2%-3%, although the effect will become evident during 2016-19, the second half of President Enrique Peña Nieto's administration."



The reform of the energy sector was the last component of the government's ambitious reform agenda. This reform, together with other structural reforms that congress has already passed including labor, telecommunications, fiscal, financial and education reforms, should strengthen Mexico's sovereign credit profile, said Moody's.