Moderate Optimism: Fitch and S&P Maintain Mexico’s Rating After Judicial Reform
18:04 12/09/2024 - PesoMXN.com
Fitch Ratings and Standard & Poor's (S&P) have indicated that a downgrade of Mexico’s credit rating is not expected following the approval of the reform to the Judiciary and other initiatives included in Andrés Manuel López Obrador’s Plan C, such as the reduction of autonomous agencies. Gerardo Carrillo, Fitch’s regional director for Latin America, stated that it is unlikely Mexico will lose its investment-grade rating, although a potential change in outlook will be considered, which could shift from stable to negative.
"The most probable change in the outlook is negative," Carrillo commented. Fitch Ratings currently has a rating of BBB- with a stable outlook, the lowest among major credit rating agencies, and is one step away from being classified as "non-investment grade." However, the agency highlights the strength of the country’s external finances and the credibility of Mexico’s central bank. Despite expectations of a negative impact from the judicial reform, it is still premature to assess its effects. "The reform that raises the most concern is that of the Judiciary, as it could affect the institutional profile of the country, especially regarding the vulnerability and autonomy of the Judiciary," Carrillo added.
Looking ahead, Carrillo emphasized that the new president, Claudia Sheinbaum, will inherit a stable economy and is expected to adopt a cautious monetary and fiscal policy to avoid macroeconomic imbalances. Meanwhile, Omar De la Torre, an analyst at Standard & Poor's, expressed that the agency does not have a preference regarding the selection of judges but will be vigilant to see if the judicial reform impacts investment attraction or the country’s fiscal health, which could negatively affect the credit rating. S&P’s rating for Mexico is BBB and has remained stable since March 2020. De la Torre noted that a failure to reduce the deficit or an increase in the debt-to-GDP ratio above 50% could trigger negative credit action, although he is optimistic that the new government will maintain economic prudence.
In summary, despite changes in the judicial environment, the strength of external finances and a cautious approach from the new government could help Mexico maintain its credit rating. However, it is crucial that concerns regarding the independence of the Judiciary be addressed and that responsible fiscal practices continue to ensure economic stability in the future.
