La Jornada: A deterioration of the credit risk rating is unlikely

The probability that Mexico’s credit risk rating will deteriorate is unlikely because the country has economic and political strengths, said Alejandro Javier Saldaña Brito, chief economist of Banco Ve por Más (Bx+).

“That the credit rating will continue to deteriorate is very unlikely, and above all I mean that we will fall into the speculative degree of the credit rating, because at the end of the day Mexico has quite a few elements in its favor, such as macroeconomic and political stability,” he commented.

“There are elements that are also considered in the credit rating, and they make the country maintain that investment grade,” he stated.

He highlighted that Mexico also has quite solid external conditions: a very small current account deficit, credit with the International Monetary Fund, a line of swaps with the United States Federal Reserve, high levels of international reserves and flexible exchange rate.

“This makes the country’s external position quite solid and, finally, let us remember that Mexico is a fairly large and diversified country in economic issues. This also helps anchor the rating,” he explained.

However, the manager highlighted that the country has challenges that have become evident in the last two years, especially in public finances, and that will be more difficult to control. “With these restrictions on the spending side, due to social programs, due to support for Petróleos Mexicanos (Pemex), due to higher financial costs, it will be increasingly difficult to stabilize debt levels,” he explained.

“Also another additional factor, on the income side, is that the economy grows little and the tax base is very small,” he added.

Saldaña Brito mentioned that in this regard Mexico has many restrictions and limitations to be able to stabilize the debt levels that accelerated starting in 2024.

“Naturally, the rating agencies are reflecting this in their latest comments and actions,” he stated.

Two of the three main agencies place Mexico on the last rung to lose investment grade. Moody’s Baa3 converges with Fitch’s BBB- stable, while Standard and Poor’s (S&P) maintains the rating just one notch above, at BBB.

On May 20, Moody’s lowered the country’s credit risk rating from Baa2 to Baa3 and changed the outlook from negative to stable, putting the country one step away from losing investment grade.

The cut came a week after S&P changed its sovereign debt outlook from stable to negative, increasing the likelihood that the agency will downgrade its rating for Mexico in the next 18 months.

The deterioration in the note granted by Moody’s implies that Mexico will have to pay a higher cost for the financing it obtains in international markets.