NEW YORK, Feb. 13 /PRNewswire/ -- Standard & Poor's today raised its
national scale rating on the State of Zacatecas, Mexico to mx-single-'A' from
mx-single-'A'-minus. The outlook is stable.
The upgrade is based on the strengthening of the state's revenue-raising
capacity, solid budgetary policies, and improving debt ratios.
In addition, the rating continues to reflect the following credit
strengths:
-- Strong budgetary performance;
-- A capable management team; and
-- Manageable capital plans.
Factors that offset these credit strengths include:
-- A shallow economy with growth rates below the national average;
however, Zacatecas' economy seems to be more resilient to economic
cycles than most other rated states;
-- The lack of independent financial audits;
-- Historically unmet infrastructure needs that are, however, currently
being addressed;
-- Per capita gross state product (GSP) that is below the national
average; and
-- A moderate unfunded pension liability;
In fiscal 2001, the state of Zacatecas implemented two new taxes: a
payroll tax of 2% and a tax on vehicles 10 years old and older. Both of these
taxes are anticipated to generate about MxP44 million in additional revenues
in 2002, or about 1% of budget. Furthermore, the state implemented a tight
expenditure control program that has generated considerable savings in
operating costs other than payroll. For fiscal 2002, Zacatecas is one of the
few states in Mexico to have implemented a comprehensive contingency plan to
limit the effects of the current economic recession. This plan includes
further operating expenditure cuts and the implementation of an incentive
package to foster economic development. Finally, Zacatecas prepaid its
outstanding debt in fiscal 2001 and currently has no direct debt. Future
indebtedness will be moderate and limited to the development of self-
supporting infrastructure projects, including toll highways and housing
projects.
Zacatecas' financial performance has been strong during the past four
years. The state has consistently produced operating surpluses, and was able
to maintain overall surpluses until 1999 without issuing any debt. Under the
Mexican system of local public finance, states depend on the federal
government for the majority of revenues, and Zacatecas is no exception with
almost 95% of its total revenues coming from federal sources. This proportion
is considered average for a Mexican state. In fiscal 2000 the state had an
operating surplus of MxP334.2 million, or 5.3% of revenues, after MxP410.8
million in capital expenditures (6.5% of total expenditures--a level that
demonstrates some flexibility in spending), resulted in an overall deficit of
MxP76.6 million, or 1.2% of operating revenues. For fiscal 2001, revenues are
running ahead of budget and the state presently anticipates a break-even
budget. In anticipation to the effects that the current recession could have
on the state's revenues, particularly on the federal participation payments,
the state has developed a comprehensive contingency plan and has budgeted very
conservatively to avoid future imbalances.
Despite very recent improvements in the state's economic outlook, social
indicators remain substandard by Mexican standards. The state's GSP per capita
is only 53% of the national level, and some demographic indicators such as
water, sewer, and electricity coverage also remain relatively low. In an
effort to improve the state's attractiveness for investment, the current
administration is developing a highway program that is expected to connect the
state to regional economic centers such as Aguascalientes and Guadalajara, and
to El Paso, Texas.
Zacatecas (population 1.3 million) is located in north-central Mexico. The
state's economy is heavily focused on agriculture, which accounts for about
18% of the state's GSP. Despite its relative proximity to the U.S. and other
major economic centers in Mexico, the state's economy has grown at well below
the national average. From 1993-1999, the state's GSP grew by 2.2% annually in
real terms, compared to the nation's average growth rate of 3.1%. This trend
is explained in part by the lack of adequate communications and transportation
infrastructure, problems that have precluded Zacatecas from benefiting from
the economic expansion experienced by neighboring states. However, the current
administration has made economic development one of its top priorities, and
has sought to attract additional investment by creating an economic
development agency and establishing a more defined set of programs and
incentives. The strategy seems to be paying off, as the state has been able to
attract about $966 million in new private investment since 1998.
The state has no outstanding direct debt, and overall debt levels are very
low at 0.4% of the state's GSP and 0.4% of operating revenues. While the state
is contingently liable for about MxP13 million in municipal and agency debt,
the state has not had to make any payments on these obligations. Overall net
debt per capita represents a low MxP9.5, and debt service payments equaled
only 0.4% of 2000 operating revenues. Currently, the state is planning to
issue about MxP350 million in new debt to finance several toll highway
projects. However, these projects are expected to be entirely self-supporting.
In fact, the state has a strict debt issuance policy and will not fund
infrastructure projects that are not estimated to be self-supporting.
A 1999 actuarial report estimated Zacatecas' pension fund liability at
between 40%-67% of the state's 1999 budget. However, concerns over this
potential liability are mitigated by the state's close monitoring of this
issue, and by the increase of the system's reserves to the current level of
MxP644 million, which cover payments due through 2022.
An updated actuarial study will be performed in 2002.
OUTLOOK: STABLE
The stable outlook reflects Standard & Poor's expectation that the state
will continue to maintain a balanced budget structure and strong debt ratios,
while addressing its current infrastructure deficit.
SOURCE Standard & Poor's Ratings Services
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Related links:
http://www.standardandpoors.com/ratings
CONTACT:
Horacio Aldrete-Sanchez, Mexico City,
+52-55-5279-2042, Antonio Huerta, Mexico City, +52-55-5279-2041,
or Jane Eddy, New York, +1-212-438- 7996, all of Standard &
Poor's
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