Fiscal discipline is key to maintaining investment-grade status

Fiscal discipline remains the key condition for Mexico to maintain its investment-grade rating from the three global rating agencies: Moody's, S&P, and Fitch. This was emphasized by Geronimo Ugarte Beldwell, chief economist at Valores Mexicanos (Valmex).

The economist explains that, in the short term, there has been no indication of any risk that Mexico might lose its investment-grade rating, although the rating agencies themselves have identified such risks to fiscal consolidation.

The expert has warned that the Mexican economy will not perform as well in the second half of the year as it did in the first half, estimating that GDP will grow by 1.1% for the year, driven by domestic consumption and exports.

Ugarte Beldwell believes that fiscal discipline will continue to be one of the key factors in maintaining investor confidence and Mexico's investment-grade rating. He explains that Mexico has a foreign exchange surplus that serves as a significant buffer against any potential depreciation of the Mexican peso.

In recent decades, one of the key factors affecting the exchange rate has been the demand for foreign currency and peso-denominated assets; therefore, a potential deterioration in perceptions of Mexico could lead to increased demand for dollars and put pressure on the peso.

However, Mexico has a structural foreign exchange surplus in the private sector, which acts as a buffer during periods of depreciation. The supply of dollars comes mainly from tourism, remittances, and exports, which are converted into pesos to facilitate economic transactions.

“In a hypothetical scenario in which Mexico were to lose its investment-grade rating,” foreign holders would have to liquidate their positions in peso-denominated assets and, eventually, convert those funds into dollars, which would put pressure on the exchange rate.