the rater Standard & Poor’s (S&P) ratified on Wednesday the rating of Mexico’s long-term sovereign debt in foreign and local currency at BBB and BBB+respectively, so analysts consider there is less risk that the country will lose investment grade in this administration.
Furthermore, the agency upgraded the outlook from negative to stableand highlighted that the Mexican government is seeking policies that maintain the soundness of its public finances and debt levels below 50 percent, which will allow it to continue with an environment of macroeconomic stability.
“The stable outlook reflects our expectation that cautious macroeconomic management will prevail over the next two years, despite a more complex global environment. We hope that the administration of the president Andres Manuel Lopez Obrador follow economic policies that result in stable fiscal and debt dynamics,” he added.
However, he added that the friction that Mexico has had with its main trading partners, the United States and Canada, might discourage investment in our country.
“The unexpected setbacks in the macroeconomic management or in the discussions between the partners of the T-MEC on strengthening supply chain resilience and cross-border linkages would likely undermine confidence and investment, and might lead to a downgrade over the next two years,” S&P commented.
They also noted that any extra support needed to Petroleos Mexicanos (Pemex) and the Federal Electricity Commission (CFE) they might also lead to a downgrade, as this would lead to higher government deficits and increase fiscal risks.
AMLO ‘presumes’ improvement in S&P outlook
The rating agency Standard & Poor’s is recognizing “fiscal stability and prudence” defended by the Government with the improvement of the perspective in Mexico’s credit ratingPresident Andrés Manuel López Obrador assured on Wednesday.
The president affirmed that the decision of the US firm will provide people who want to invest in Mexico with “greater certainty.”
“This modification is important because when a country has a negative outlookit is likely that there will be a reduction in the rating, ”explained the president on his social networks.
The Treasury highlighted that the improvement in the outlook together with the ratification of the sovereign debt will allow continued favorable access to international and national markets.
less fear
Analysts agreed that the improved outlook reduces the risk that Mexico will lose investment grade in this administration.
Ernesto O’Farrill, president of Grupo Bursametria, noted that this significantly reduces the fear of losing investment grade.
“Only Moody’s has us on a negative outlook; We have to see if he also dares to remove it and put it on stable, ”she said. However, he considered that a possible episode of recession in the United States might impact the country.
“Higher interest rates and less economic activity might put pressure on public finances in the future,” he asserted, adding that the differences between the two countries due to trade issues signed in the T-MEC do not contribute to Mexico’s credit certainty either.
Banorte analysts They agreed that only Moody’s has a negative outlook for Mexico, but they expect this agency to make an update soon.
They detailed that this position reflects the confidence that exists in the country. “The decision reinforces our confidence that Mexico will continue to be an investment grade issuer in the short and medium term,” they stressed.
Pamela Díaz Loubet, economist for Mexico at BNP Paribas, He noted that S&P’s decision reduces the possibility, but does not eliminate the risk of future downgrades.
“There is risk due to the deterioration of the commercial relationship between the United States and Mexico. In particular, given a possible activation of dispute resolution mechanisms in the energy sector and labor market”, he said.
He added that the rule of law and insecurity are another pending issue of the current administration.
“The perception of insecurity in the country has been increasing and, in some cases, has had a negative impact on the national production chains. This is an important element to monitor, since it might limit an adequate capitalization of nearshoring benefits in the country”, Díaz Loubet added.
Alain Jaimes, economic analyst at Signum Research, affirmed that, although the news is positive, the balance of risks continues to be biased upwards, since the lack of economic growth and the lack of conditions that generate it are still in force, in addition to the risk represented by Pemex’s finances, “which might make this favorable change of perspective momentary.”
