Standard & Poor's downgraded Mexico's credit rating Monday, saying the country has taken insufficient steps to compensate for falling oil revenues.
S&P lowered Mexico's foreign currency debt rating from BBB+ to BBB, a downgrade that will raise the government's borrowing costs. The rating is eight levels lower than the highest -- AAA -- but remains at investment grade.
"Mexico's recent steps to raise non-oil revenues and improve efficiencies in the economy will likely be insufficient to compensate for the weakening of its fiscal profile," S&P analyst Lisa Schineller said.
The S&P downgrade came three weeks after Fitch Ratings also lowered Mexico's credit ratings.
Oil income makes up more than a third of Mexico's public sector revenues, but production has been falling as reserves dry up.
President Felipe Calderon was unable to push a bill through Congress to increase consumption taxes by 2 percent to offset weakening government revenue. Lawmakers approved a 1 percent value-added tax last month.
"The inability to widen the tax base substantially, along with a low likelihood of major tax reform in the next several years, suggest that Mexico's debt profile will remain more in line with that of its 'BBB' peers," S&P said in a statement.
Mexico, which sends 80 percent of its exports to the United States, has been severely affected by U.S. economic downtown. The government expects a 7.5 percent economic contraction in 2009 amid plummeting exports.
S&P predicted that Mexico's strong dependency on the U.S. economy would limit its growth prospects for the next several years despite the government's efforts to eliminate inefficiencies and improve its competitiveness.
In October, Calderon disbanded Luz y Fuerza, the costly and troubled state power company for the region in and around the capital. The president said costs between 2003 and 2008 ballooned to 433 billion pesos ($32.5 billion) while sales totaled just 236 billion pesos ($17.7 billion).
The Finance Department said in a statement that it took note of the S&P decision and was committed to "continue advancing in addressing to the structural weaknesses signaled by the rating agency."
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