Dismantling of NAFTA would prompt S&P to reassess Mexico rating

S&P Global Ratings would revisit Mexico’s sovereign credit rating if the North American Free Trade Agreement (NAFTA) is “materially dismantled”, the ratings agency announced Tuesday, whilst stressing this was not its base case.

S&P currently rates Mexico BBB+ with a stable outlook, based on the assumption that NAFTA will be renegotiated and the new deal will broadly preserve the existing trade and investment flows between Mexico and the United States.

“That is, it will not have a material impact on the variables that we monitor. If we are wrong about that and NAFTA is materially dismantled, obviously we’ll have to revisit the situation,” sovereign analyst Joydeep Mukherji said in a statement.

On Brazil, which S&P currently rates BB with a negative outlook, Mukherji said the ratings agency hoped to resolve the negative outlook well before Brazil’s elections next year, with pension reform being key.

“Passage of the reform would give the next government some breathing space, which will be required to enact further reforms to bring the fiscal accounts back on an even keel,” Mukherji said. “If that happens, the rating can stabilize. If it doesn’t we could lower the ratings.”

The ratings agency also said that if it were to downgrade Colombia, which it currently rates BBB with a negative outlook, it would be due to a deterioration in the country’s financial profile.

Source: Reuters