Between Fallen Angels and Optimism

Moody's cites that seven energy companies in America have a rating that is in the border zone between investment and speculative grade.

In this area are the "rising stars" and the potential "fallen angels" including PEMEX.

In general, the concern of the rating agencies and the market in general, is the government's strategy to promote PEMEX from a limited tax base, due to tax revenues that already reflect the stagnation of the economy, and at the same time compromised by social programs.

The 2020 budget projects an oil production of 1.95 million barrels per day, which is compared to an average production of 1.67 mdb in the first seven months of 2019, equivalent to an increase of 17.8%.

The compensation for this optimism in oil production could come from a budgeted oil price of 49 dpb, below the current market close to 59 dpb.

More relevant will be non-oil revenues, which are 4.5 times higher than oil revenues.

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The budget assumes a real 3.7% increase in non-oil revenues compared to the estimate for 2019.

This supposes a great efficiency in the collection, as well as a growth of the GDP of 2% , that seeing the current tendencies of the investment looks extremely optimistic.

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The key variable will be the dynamism of the economy, due to its effect on tax revenues.

Income tax collection for July this year registers a 10% drop compared to the same month in 2018, in an environment of clear weakening of the economy.

Achieving a significant increase in collection, along with a jump in growth, does not look easy. Greater transfer of resources from individuals (whether informal or formal) to the government implies less capacity for consumption and private investment.

Do angels fall or do we get optimistic?