September 4, 2019 / 3:55 PM / 7 months ago

UPDATE 1-Pemex's ailing finances pose top risk to Mexican economy - Moody's

(Recasts headline, lead, adds details on Pemex and growth forecasts)

MEXICO CITY, Sept 4 (Reuters) - Uncoordinated policy decisions have shaken investor confidence in Mexico, an analyst with ratings agency Moody's said on Wednesday, adding that the precarious financial situation of state oil company Pemex poses the main risk to economic growth.

Moody's analyst Ariane Ortiz-Bollin, speaking at an event in Mexico City, said Pemex's profitable exploration and production business needs even more funding than what the government of President Andres Manuel Lopez Obrador has so far pledged for it.

Ortiz-Bollin also noted that investor confidence in Mexico has been affected by unpredictable policy decisions, adding to a wave of concerns from ratings agencies during Lopez Obrador's nine-month-old government.

"We believe that there is some lack of economic rationality in government policy decisions, in particular in relation to Pemex," she said.

While Lopez Obrador, a leftist energy nationalist who took office in December, has boosted Pemex's budget to find and exploit new oil and gas fields, his government has also dedicated massive new spending for its money-losing refining business in a bid to produce more fuel at home and wean the country off growing gasoline imports.

Credit rating agencies have consistently criticized the government's funding priorities for Pemex.

Pemex, the world's most indebted oil company, is teetering on the edge of a second downgrade of its debt to so-called junk status after Fitch did so in June, which would trigger forced selling of bonds worth billions of dollars.

Lopez Obrador has repeatedly said his government will provide Pemex, formally known as Petroleos Mexicanos, with as much funding as it needs and has pushed spending cuts as a way to dedicate more resources to the ailing Mexican oil giant.

Ortiz-Bollin said additional support for Pemex will have a negative impact on the government's fiscal deficit, and she signaled that Pemex's standalone credit profile is deteriorating due to declining output, a high level of debt and declining reserves, a major measure for the financial health of oil companies

Ortiz-Bollin said Moody's expects the Mexican economy to grow by 0.5% this year and 1.5% in 2020. (Reporting by Stefanie Eschenbacher; Writing by Julia Love; Editing by David Alire Garcia and Marguerita Choy)

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