Elections, Autonomy: Keys to Mexico’s Credit Rating

2021 is an election year for Mexico and any action that affects the Electoral National Institute (INE) could affect the perception people have of the country’s risk and credit rating, explained Carlos Serrano, Chief Economist at BBVA, reports Forbes Mexico.

Autonomous institutions give investors certainty about a country. “Rating agencies have said that a deterioration of Mexico’s institutional framework, in particular of autonomous institutions (INE and Banxico), would increase the perception of risk and have negative effects in its rating,” said Serrano to Forbes Mexico. He explained that it is imperative for the country to have an autonomous organism that oversees and organizes elections. “If there was something that would affect (INE), we do believe it will affect the perception of risk in the country and even its credit rating,” he said. 

Lisa Shineller, Analyst at S&P, believes that Banxico’s autonomy offers higher levels of certainty and a stronger institutional framework, reports El Economista. S&P is waiting to see how the Mexican government handles these elections before evaluating Mexico’s rating. "The macroeconomic execution, the monetary policy and the independence of Banxico are strong counterweights that allow us to wait and see the government's fiscal strategies between now and the June elections, without taking an action regarding rating." Shineller also mentioned that the Mexican energy reform puts further pressure on the investment environment and that rule of law, corruption and insecurity are also huge factors affecting the rating Mexico can receive.

Another concern for analysts is state company PEMEX. According to Expansión Política, bonds from 37 different oil companies, comparable in size to PEMEX, average out a yield rating of 3.63 percent. When it comes to PEMEX, however, the yield for long-term bonds range from 6.37 to 6.66 percent. This is more than double the amount of other comparable companies. This gives PEMEX a grade of ‘BB-’, which is comparable to companies that are close to falling into speculative risk (B-), according to Fitch Ratings.