Japan’s Credit Rating Agency Upgrades Mexico

Mexico’s Ministry of Finance and Public Credit (SHCP) announced that Japan’s Credit Rating Agency (JCR) upgraded the country’s rating outlook from Negative to Stable, highlighting its exports and adequate management of public finances.

“The ratings are supported by the country’s solid export-oriented industrial base, flexible and agile monetary and exchange rate policies and resilience to external shocks. On the other hand, they are constrained by the country’s oil industry that needs modernization and the uncertainty of the government’s economic policies. The deterioration of the fiscal position has been restrained as compared to JCR's assumption as the Andrés Manuel López Obrador (AMLO) administration has implemented its anti-pandemic support measures with due heed to fiscal discipline,” explained the Japan Credit Rating Agency via a report.

JCR rated long-term Mexican debt in foreign currency at A-, four levels above investment grade, highlighting the stabilization of debt alongside the country’s GDP growth. In its announcement of the upgrade, SHCP informed that Mexico’s tax collection strategy, an increase in public income and adequate macroeconomic management influenced JCR’s decision.

JCR explained that the new rating also considers the private investments that have not fully recovered to pre-pandemic levels, as they continue to be affected by strict economic policies displayed by the government that aim to provide stability throughout the crisis. Also, President López Obrador’s plan to continue the implementation of fiscal discipline will maintain moderate growth in the economy, which JCR attributes as an important factor in improving the country’s rating.

The improvement in Mexico’s rating comes after the SHCP announced an increase in tax and public sector revenue in January. In March, the SHCP explained that the country’s financial management remains in line with the 2022 economic package. Growth was attributed to an increase in oil revenues and an evolution in tax collection, as reported by MBN.

JCR also attributed the change in rating to the solidification of the USMCA, assuring that it eliminates uncertainty over trade issues with the US while improving the country’s external balance. Mexico retains the IMF's Flexible Credit Line, making the country highly resilient to external shocks, according to JCR’s report.

“The improvement in the outlook and the ratification of the sovereign debt will allow continued favorable access to international and national markets,” said SHCP via a press release.