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A reason for Mexico to give thanks for Donald Trump.

The peso’s massive depreciation after the US presidential election boosted the central bank’s profits so much that it will be easier for the government to hold on to its credit rating, Moody’s suggests.

Moody’s currently rates Mexico’s sovereign debt at A3 with a negative outlook, and has previously warned it faces a 50-50 chance of being downgraded.

Even before President Trump’s victory, the ratings agency had warned that an economic slowdown could weigh on the government’s fiscal consolidation efforts and lead to a downgrade. However, the subsequent drop in the peso has provided a boost to government coffers that Moody’s says could help offset some of the impact of slower growth.

Banxico last week announced that it has given the government MXN321.7bn ($17.2bn), after the peso’s weakness helped it to an extraordinary profit of MXN535.3bn last year. (Since then, the peso has picked up.)

The payment amounts to around 1.5 per cent of Mexico’s annual economic output, and will be used to cut the government’s financing costs and build a reserve to use if government revenues miss budget targets.

Moody’s is less optimistic than the government about Mexico’s growth prospects for 2017, predicting expansion of only 1.4 per cent compared to official estimates of 2 to 3 per cent.

Still, if the ratings agency is right, that bonus cash could come in handy. Moody’s said:

Banxico’s announced transfer will partially mitigate the potential loss of tax collection from the effects of lower-than-expected growth this year and provide support for the government to maintain its fiscal consolidation agenda and stabilise the public sector debt-to-GDP ratio.

Federal government debt reached 36.8 per cent of GDP in 2016, and we expect the government’s debt ratio to stabilise at 40 per cent by mid-2018, partly as a result of Banxico’s extraordinary profits transfer and despite the ongoing economic slowdown.

Copyright The Financial Times Limited 2017. All rights reserved.
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