Moody’s upgrades Mexico, Paraguay as Fitch sounds Brazil warning
An economic shake-up pushed through by Enrique Peña Nieto’s government has improved Mexico’s medium-term economic prospects, says Moodys
Mexico's extensive program of economic reforms paid
dividends on Wednesday when Moody's lifted its rating on the
sovereign to A3. The ratings agency cited Mexico's structural
reforms that it expects will translate into "firm but gradual"
improvements in the country's credit metrics, as it raised the
rating by one notch, from Baa1.
"After 20 years of attempts by three different
administrations to push through a reform agenda, the approval
of reforms not only reflects strong political will and ability
to deliver campaign promises, but in some instances also
exceeds initial expectations," the agency said.
The upgrade was "very well-deserved" in the eyes of Goldman
Sachs analyst Alberto Ramos, who said the reforms would not
"radically transform the country and the economy overnight",
but were nonetheless "unquestionably positive".
"Furthermore, the upgrade into the "A-Class" rating bracket
and the presence of orthodox, disciplined, and market-friendly
non-interventionist policies should also contribute to
positively differentiate Mexico from other large EM economies,
particularly in the current global context of EM asset
re-pricing," he said in a research note published on
The news came after Moody's lifted Paraguay's rating a notch
to Ba2 on Tuesday, as it praised the South American country for
its lower debt ratios, recent fiscal reforms and political
stability following the impeachment of former president
Fernando Lugo in 2012.
"The positive outlook on the Ba2 rating reflects our
expectation that, even though it will take time for the
government to implement the various laws approved in late 2013,
they are likely to improve fiscal oversight and allow for
higher levels of infrastructure investment," Moody's said.
The ratings agency said the transition of power since the
impeachment of Lugo was smooth and that there had been "no
material impact on the economy or to the country's
Horacio Cartes, the business magnate who was sworn in as
president in August, aims to attract foreign investment to
diversify Paraguay's economy from its dependence on
agricultural exports. The landlocked country is
considering a follow-up to its debut bond, as well as
increasing its multilateral debt, to raise funds for
infrastructure and fighting poverty, the country's finance
minister, German Rojas, told LatinFinance in September.
Moody's warned that the Ba2 rating could be revised down if
the government's strives away from its "prudent" fiscal track,
if commodity prices fall or if political instability flares up
again. Paraguay is rated BB- by Fitch and Standard and
Meanwhile, Fitch cautioned Brazil on Tuesday to cut spending
and reduce debt to support its BBB sovereign rating.
Economic growth in South America's largest economy is
slowing amid continued spending pressures and high inflation,
the agency said.
"Fitch has emphasized that Brazil's public finances continue
to represent a relative weakness for its credit profile," the
agency said in a statement.
President Dilma Rousseff, who is running for re-election in
October, has pledged to cut spending this year, which could
dampen support for her party.
Moody's and Standard & Poor's have also advised Brazil
to tighten its fiscal policy. Moody's changed the outlook on
Brazil's Baa2 rating to stable, from positive, in October.
S&P put its BBB rating of the sovereign on negative outlook
in June. LF