Country risk expert insight – Q1 results: Mexico
The results of the latest Euromoney Country Risk quarterly survey saw Mexico’s risk score fall 1.49 points. With a score of 60.82, the country now sits at 37th in the global ECR rankings. ECR asked two experts for their opinions on the reasons behind the decline.
“But towards the end of 2014, the glass developed serious leaks, reflected in the recent drop of Euromoney’s country rating. Concerns about oil prices were a major factor. Energy revenue is still 30% of the budget and will likely require further tax increases and spending cuts than those already made. With expiring oil hedges and lower revenue expectations from oil field auctions, the challenges are considerable.
“Following close behind as a concern is reduced support for president Enrique Peña Nieto. This has three sources: a) the sequential failure of the economy to match predictions – the latest blip being the nearly 50% reduction in FDI in 2014; b) security concerns – highlighted by the involvement of a local mayor and police in the murder of 43 students from Iguala in Guerrero State, and c) questions about character – due to Peña Nieto’s wife’s real-estate dealings.
“The lower rating underlines how far Mexico’s governance reforms still must travel, the chill that remains in the economic climate, and the increased uncertainty about the outcome of mid-term elections in June.”
“Following the multi-party ‘pact for Mexico’ in 2012, the Mexican economy has shown important signs of economic resilience. In the last couple of years, growth rates have picked up, as a result of sound macroeconomic policies and the economic recovery of Mexico’s main trading partner the US.
“For this to continue, structural reforms in the labour market and the energy, financial and telecommunications sectors are needed.
“Although most of the reforms have been approved, the running up to the key mid-term elections for the chamber of deputies in June shows that their future implementation is less secure. Approval ratings for the Mexican president are low, amidst accusations of corruption and non-transparency.
“Also, in the current unstable political climate, it is unclear to what degree the main opposition parties will support carrying out the reforms as originally agreed. Although Mexico’s economic fundamentals compare favourably to most other emerging economies, the results of the upcoming elections are likely to be a deciding factor whether the structural reforms will sufficiently strengthen the sustainability of Mexico’s economic recovery.”
This article was originally published by ECR. To find out more, register for a free trial at Euromoney Country Risk.