UPDATE 1-S&P upgrades Mexico sovereign credit rating to BBB-plus

Daniel Bases
Thursday, 19 Dec 2013 | 5:38 PM ET

NEW YORK, Dec 19 (Reuters) - Standard & Poor's on Thursday raised its sovereign long-term foreign currency credit rating for Mexico to BBB-plus from BBB, moving it higher into investment-grade territory after a series of economic reforms lifts the nation's economic prospects.

"The passage of a landmark energy reform, supported by some changes in the fiscal framework, bolsters Mexico's growth prospects and fiscal flexibility in the medium term," S&P said in a statement.

The credit outlook on the sovereign is stable following the upgrade. S&P's decision brings it in line with both Moody's Investors Service's Baa1 rating with a stable outlook and Fitch Ratings' BBB-plus with a stable outlook.

Mexican President Enrique Pena Nieto has overseen passage of laws that will overhaul the nation's education system, created a new telecommunications regulator to shake up the market, and pushed through reforms of the tax system and banking rules.

However, the most historic reform was the ending of a 75-year old state monopoly on the oil and gas sector, the major contributor to Mexico's budget that will now allow private investors to help develop its oil and gas resources.

"This is a watershed moment for Mexico," S&P said, adding: "Tapping into Mexico's vast oil potential should energize investment and growth throughout the economy, but we also believe that we won't see its tangible effects on economic activity for a number of years."

S&P said Mexico's rating reflects a track record of "cautious" fiscal and monetary policies that have resulted in low government deficits and inflation, bolstered economic resilience, and contained fiscal and external debt levels.

The rating however remains constrained by limited fiscal flexibility and moderate trend economic growth.

S&P expects real GDP growth of 3 percent in 2014 and 2.5 percent in 2015, up from 1.2 percent in 2013.

In the December Mexican central bank survey of analysts, the 38 polled expects an average growth rate this year of 1.3 percent and 3.41 percent in 2014. Inflation is expected to rise as well.