Mexico maintained its credit rating at BBB with a stable outlook as two international credit rating agencies reaffirmed the country’s sovereign debt. However, one noted that the current administration’s policy fails to assure economic growth.
Kroll Bond Rating Agency (KBRA) and DBRS Morningstar (DBRS) reaffirmed Mexico's long-term sovereign debt in foreign currency at BBB, which positions the country two levels above investment grade. Mexico’s Ministry of Finance and Public Credit (SHCP) explained that a stable outlook means that no changes are expected in the rating in the next 12 to 18 months, according to an SHCP press release.
KBRA highlighted Mexico’s solid management of its economy and macroeconomic balances, says SHCP. KBRA added that Mexico has solid fiscal metrics, a flexible exchange rate and a low current account deficit, which provide the country with stability against external shocks.
DBRS explained that Mexico has adequately managed its fiscal policy, its monetary policy and has a well-capitalized and liquid financial system, which supports the external and internal strength of the country’s economy.
DBRS explained that the BBB ratings balance was attributed to Mexico’s sound macroeconomic policymaking and solid macroeconomic fundamentals through a series of shocks. For DBRS, the Mexican financial system has demonstrated resilience through the pandemic, as Mexico presents consistency with economic fundamentals.
“However, significant structural challenges weigh on the credit profile. Poor education outcomes, widespread informality and far-reaching governance problems have led to decades of weak economic growth. Given the policy orientation of the López Obrador administration, we do not expect the country's growth potential to improve,” explains DBRS in its report.
DBRS and KBRA highlighted the strength and diversification of Mexico’s long-term debt portfolio in local currency at a fixed rate. The agencies concur that Banxico’s reserves and a Flexible Credit Line with the International Monetary Fund (IMF), worth US$48 billion, give the country stability.
SHCP explained that both agencies reaffirmed Mexico’s opportunity to take advantage of the relocation of global value chains, insisting that the country must promote policies for private investment and competition.
“Its geographical location and its commercial and institutional link with the US within the framework of the USMCA reinforce the perspective of greater production and investment in the country,” explains SHCP.