The Credit Default Swap (CDS) of Mexico is higher than that of countries with the same investment grade, except for Hungary, and has surpassed those of Peru and India, which have a rating one level lower than Mexico, according to Citibanamex. Over the past 23 years, Mexico has maintained an investment grade, although at the lowest tiers of the rating agencies.
From the beginning of the year until now, the average CDS of emerging economies has ranged between 162 and 185 basis points, averaging 168 basis points in October. In June, it increased by 16 basis points, attributed to electoral results. In contrast, Mexico's CDS has shown growth, reaching an average of 126 basis points in October, reflecting a perception of higher risk compared to other emerging markets.
Rating agencies point out that factors such as prudent macroeconomic policies, solid external accounts, and lower public debt as a proportion of GDP compared to countries with similar ratings support Mexico's investment grade. On the other hand, limitations include weaknesses in governance indicators, low medium-term economic growth, and a deterioration in public finance margins.
It is expected that in the short term, public debt will continue to rise, although not at the same pace as in other emerging economies. However, in recent years, public spending has grown faster than revenues, consequently suggesting the need to reduce the fiscal deficit, projected for this year at 6 percent of GDP, the highest since 1988.
Citibanamex warns about the possibility of a change in Mexico's credit outlook due to the trend of public finances, low economic growth, and the weak institutional framework in the country. The director of Economic Studies and research economist at Citibanamex indicates that the loss of strength in public finances and other factors may lead to a revision of the rating outlook in the coming months.
Such a change is expected to occur unless a robust and feasible consolidation plan is implemented in the 2025 Economic Package, which will be published on October 15. The 5-year Credit Default Swaps (CDS), a key indicator, already surpass those of countries with similar ratings.
