S&P warns Mexico on debt rating as oil revenue falls

Mexican President Felipe Calderon must create new sources of revenue to offset declining oil income if the country is to avoid a downgrade of its debt rating, Standard & Poor’s analyst Lisa Schineller said. S&P may cut Mexico’s BBB-plus status before the end of the year, depending on how Calderon and legislators address ways to boost tax collection when they discuss the 2010 budget next week, Schineller said in an interview. That’s more important in assessing the country’s capacity to pay debt than any increase in the budget deficit, which economists say may widen to 3.5% of gross domestic product from 3% this year. ‘It’s the concept of strengthening the medium-term revenue base in a permanent manner that can generate revenue to help offset the decline in oil revenue over the coming years,’ Schineller said in a telephone interview from New York. Mexico’s contracting economy, a 50% drop in oil prices over the last year and declining production by the state oil monopoly have exposed lawmakers’ failure to raise taxes and reduce dependence on petroleum for 40% of revenue. S&P wants Mexico to address this without resorting to temporary measures aimed at getting it through next year, Schineller said.