Mexico’s Country Risk Indicator up 45.9 Percent from 2017

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Mexico’s ranking on Latin America’s Emerging Markets Bond Index (EMBI), more commonly referred to as the Country Risk Indicator, fell to 11th place in 2023 from its fifth place ranking in 2017, placing Mexico’s economy in the bottom half of the 17 Latin American economies considered by the index.

The nation’s new ranking on the Country Risk Indicator, which is compiled by New York-based financial firm JP Morgan Chase based on the amount of foreign debt issued by each country, means that Mexico’s economy is considered a very risky investment on an international scale.

JP Morgan Chase calculates a nation’s EMBI by finding the difference in interest rates paid by dollar-denominated bonds per country with 10-year U.S. treasury bonds, making the EMBI the minimum amount an investor would need to put into a respective country.

According to the EMBI records, Mexico’s Country Risk Indicator has surged 45.9 percent since July 2015 when there was high volatility in the exchange rate at the time former U.S. President Donald Trump’s ran for for presidential office.

“By 2016 Donald Trump had won the elections in the United States, and the exchange rate reached an all-time high, then Brexit came, and these factors generated risk aversion internationally and in Mexico as well,” analyzed director of Economic Analysis at Banco Base Gabriela Siller, who went on to mention that the current investment risk in Mexico has only been made more evident by the outflow of capital from government securities thus far in 2023.

“May is when the largest outflow of capital occurred and that month was when the presidential decrees and the temporary takeover of the Ferrosur tracks were issued, so it is evident that now internal economic policy generates uncertainty and greater risk aversion abroad; I believe that the public insecurity that exists in Mexico is harmful,” Siller told daily Mexican newspaper Reforma.

The Banco Base director also noted that the outflow of capital from government securities could continue rising in the year ahead as Mexico approaches its presidential elections in 2024.

“There is a high possibility that the Country Risk Indicator will continue to increase in 2023 because we are approaching the federal elections of the following year, and what could cause more fear is that the National Regeneration Movement (Morena) wins the presidency and the majority in congress, especially since there would be no counterweight to possible drastic changes to the constitution,” added Siller.

However, Siller said that Mexico’s debt levels should not affect its EMBI, and that the approaching elections as well as the nation’s slow recovery from the covid-19 pandemic all contribute to Mexico’s increased Country Risk Indicator. 

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