'While companies are expected to see a negative impact on cash flow, mainly due to more taxes, in general these initiatives are turning
Negatively, the fiscal reform did not increase the number of taxpayers because it lacked enforcement for the informal sector - which amounts to almost 60% of the total taxpayer pool. Existing taxpayers and companies already paying taxes will be negatively impacted.
Fiscal reform may dampen demand for consumer goods, and lower profitability for newly-taxed beverages and high calorie foods. Mexican bottler volumes will decline 5%-7%, while average sales prices will increase 10%-15%. High-calorie food volumes are expected to decline in the low single digits while prices should increase to levels around 8%. Retailers with operations on the U.S. border may be disadvantaged by the increased VAT tax.
Telecom reform will hurt dominant providers America Movil, S.A.B. de C.V. and Televisa,
Financial reform should support greater financial intermediation and economic growth over the medium-to-long term. Financing from private financial institutions and government-owned development banks should increase. New bankruptcy rules should better protect creditors on bad loans while precedents for new bankruptcy cases should underpin an increase in lending.
Energy reform will improve competitiveness by reducing constraints on Pemex and fostering natural gas production and infrastructure development.
Labor and education reform are expected to have a limited impact in the short term, but over the long term will support economic growth.
For more information, a special report titled '
Additional information is available at 'www.fitchratings.com'.
Alberto Moreno, +52-81-8399-9100
Source: Fitch Ratings
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