### Fitch Ratings Increases Baja California’s Rating to ‘BBB+(mex)’
Fitch Ratings has upgraded Baja California’s long-term national rating from ‘BBB(mex)’ to ‘BBB+(mex)’ and adjusted its outlook from positive to stable. The boost in rating reflects significant improvements in the state’s debt sustainability, which rose from a ‘bb’ grade to ‘bbb’, due to better local revenue collection and operational spending control over the last two years.
This positive change is credited to the implementation of the financial plan by the current administration and the state’s robust manufacturing profile. Fitch expects Baja California’s operating balance to remain favorable thanks to various strategies like enhanced collection efficiency, operational expense control, and increased investment expenditure. Additionally, the state aims to reduce short-term financial debt gradually until its settlement in 2027, the end of the current administration’s term.
As of June 30, 2024, Baja California’s outstanding debt was 1,793 million pesos. The state forecasts closing 2024 with approximately 3,000 million pesos in debt, continuing its gradual reduction toward full repayment by 2027, in line with the Financial Discipline Law (LDF). Furthermore, Fitch projects additional long-term debt up to 8,114 million pesos by 2025, equivalent to 15% of freely disposable income, within the Alert System limits established by the Ministry of Finance and Public Credit.
A key strength identified by Fitch is the state’s income, which is closely related to national transfers from the sovereign counterpart rated ‘BBB-‘. During the analysis period (2019-2023), federal transfers represented 82% of Baja California’s total income. In 2023, operational income grew 13%, totaling 69,639 million pesos, driven by extraordinary resources for educational payroll and favorable local revenue collection, which saw a 36% increase.
Fitch anticipates that the favorable income dynamics will continue for the next five years. By June 2024, the total income for Baja California grew 11%, with local revenues experiencing the most significant uptick.
Educational expenditures account for 48% of the state’s total spending on basic education, the highest percentage nationally, compared to the 19% national average. Additionally, extraordinary contributions to social security have been increasing during the analyzed period, amounting to a significant financial burden of 3,915 million pesos in 2023.
From 2019 to 2023, operational spending often outpaced operational investment; in 2023, operational spending increased by 14% (reaching 65,812 million pesos), whereas operational income grew 13%. Despite this, efforts continue to control spending and improve the efficiency of the Baja California Public Workers’ Social Security Institute (ISSSTECALI) and municipal water operators, aiming to enhance efficiency and reduce financial dependency on the state.
### Additional Information on Baja California’s Financial Landscape
A study by another financial analysis firm highlighted that Baja California remains a critical industrial hub, with its manufacturing sector generating significant economic activity. The region’s strategic location near the US border facilitates robust trade and industrial operations.
Reports suggest that due to targeted fiscal policies, Baja California has been able to attract considerable foreign investments, propelling economic growth. The state’s diverse economy, which includes sectors such as logistics, tourism, and technology, contributes to its financial resilience.
Furthermore, local government initiatives have focused on enhancing infrastructure, particularly in transportation and utilities, to support sustained economic expansion and improve living standards for its residents. These combined efforts align with Fitch Ratings’ positive assessment and reinforce the state’s financial stability and growth potential.