The rating agencies analyze the country's indebtedness level and the political and economic factors to determine its risk of default.
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Generally, when we think about a credit report , we imagine people's credit history. This credit report is for banks or other credit grantors to determine not only if they can give you one, but under what conditions.
This credit report generally encompasses the historical behavior of your credits: your promptness of payment , your delays and the amount due, your balances (or level of indebtedness), among other data. In addition to all this information, the (such as y) calculate a “score” or numerical score that you intend, by reading a single number, to predict the probability that you will stop paying your credits in the short term. The higher the score , the lower your probability of default. This “ score ” is modified as your situation changes: if your credit falls behind in some credit, if your debt level drops, your score goes up.
Just as people have to take care of our credit history, so must Mexico. However, unlike people, the probability that a country falls into default is determined by rating agencies such as,, (Mexican) and. The rating agencies analyze the country's debt level, political factors, economic factors, among others, to determine the risk of default. In fact, recently Fitch Ratings ratified Mexico's rating on BBB with a stable outlook. This does not tell us much by ourselves to those of us who are not economists, but if we compare with other countries, and what this qualification means in terms of financing, perhaps we can better understand the importance of this “Credit Report of Mexico” and the impact it has for you.
In the table, Mexico is in “Investment Grade”. This is important because there are many sovereign funds, pension funds (national and foreign), among others, which can only by statute invest in debt of countries with “Investment Grade”. So, if Mexico stopped maintaining this score, this money would have to leave Mexico.
But then why do these funds not only invest in AAA debt (less risk) and do they invest in Mexico that is BBB? Very simple: because the rate is even more attractive with the increase in risk. For example, Australia that has an AAA rating is currently issuing 3-year bonds (debt) at a rate of 0.63%. That is, if you invest $ 1,000 pesos (technically Australian dollars) in these bonds, you would have a yield at the end of the first year of only $ 6.3 pesos. In contrast, in Mexico, the 3-year bond would give you a yield more than 10 times higher (6.76% per year). In the same way, when you try to get a loan, you will get a lower rate and better conditions if your risk of default is low. In this sense, the rating of a country's debt and your credit information report have much in common.
Then, the deterioration in the credit rating in Mexico, especially below the investment grade, would cause a massive capital flight, forcing Banco de México to raise rates, causing a depreciation of the peso, an increase in inflation, and pressing – in case it was missing – economic growth. If you have any questions about how this might look in Mexico, keep an eye on Argentina and Venezuela well below in the table.
If the impact that this has for you is still not evident, this graph shows the relationship of several countries between the per capita income and the credit rating of your country. In general, people with higher incomes live in countries with better credit ratings (the horizontal dotted line represents the division between the degree of investment and the speculative).
Graphic: Colenbrander, Sarah Lindfield, Michael Lufkin, Joseph. (2018). Low-Carbon Financing, Climate-Resilient Cities.
In conclusion, the care of Mexico's credit history concerns us all, and the goal should not be to avoid falling below the investment grade, but to improve our score, so that we can obtain better and better financing as a country and that this It is reflected in better income for all.