Central and Latin America: Country Risk Ratings

Argentina (ARG)

Argentina’s overall risk remains medium high. President Javier Milei’s administration continues to be popular but with fragmenting support as the winners from economic growth have so far not been widespread and intermittent squeezes have been seen on real wages. Unemployment has also started to drift up, as the exports boom bypasses certain sectors. Additionally, the government has seen tensions rise with Lula administration in Brazil, as Milei has directly supported Flavio Bolsonaro – which could slow progress on a Latam trade agreement with 3rd party countries. We still think the October/November 2027 presidential election could be close, though opposition parties need to unify around a credible candidate. It is also worth remembering that polls underestimated Milei’s support ahead of October 2025 elections. Meanwhile, Milei’s relationship with the Trump administration remains very good, with Milei having supported Trump’s pivot toward the Americas in the U.S. security strategy, leading to a new bilateral trade deal agreed with the U.S. earlier in the year.

Economically, Argentina’s GDP growth is projected to maintain momentum with a positive growth of 3.5% in 2026, forecast by the IMF. Growth is also being helped by multi-year macroeconomic confidence, with inflation still coming down; the economy rebounding; FX reserves climbing and fiscal policy under control. Additionally, Argentina continues to benefit from the 4-year USD20bn IMF Extended Fund Facility, with the 3rd review in July 2026 highlighting Argentina’s progress. However, Argentina remains the IMF’s largest debtor and still has an overall government debt projected to be 70.4% of GDP in 2026, with a large set of repayments due in 2027. Pre-election political instability could hurt financing in 2027 and the economic momentum. Thus sovereign non-payment risk stays at medium. Inflation has also been on a downward trend since 2024 but progress has slowed with an increase in energy and utility prices and the IMF now forecasts inflation to be 30.4% in 2026, according to the April 2026 World Economic Outlook (WEO) report. Finally, the risk of doing business continues at a high level.

Barbados (BRB)

Barbados remains medium overall, with strong political institutions offset by high public debt and external-shock exposure. Political violence, legal & regulatory risk, supply-chain disruption and political interference are all medium-low. Prime Minister Mia Mottley secured a historic third term in February 2026, with the Barbados Labour Party again winning all 30 seats in the House of Assembly. CARICOM observers said the result reflected the will of voters despite some concerns over the electoral register. The overwhelming parliamentary majority provides policy continuity and reduces near-term political instability, although the absence of an elected opposition places greater importance on institutional checks outside parliament. Barbados remains one of the Caribbean’s more stable and transparent jurisdictions.

The IMF expects real GDP growth of around 2.2% in 2026 and inflation of roughly 3.1%. Tourism, construction and services continue to support activity, but the island remains exposed to high imported-energy and food costs as well as hurricanes and other climate shocks. In June, the IMF approved a new 36-month precautionary Stand-By Arrangement worth around USD257 mln, reinforcing the government’s BERT 2026 reform programme. Public debt has fallen substantially since the 2018 restructuring but remains high, at 91.8% of GDP, with the authorities targeting 60% by FY2035/36. Sovereign non-payment risk has eased from medium-high to medium, while exchange transfer risk remains medium-high. Barbados’ fixed exchange-rate regime and adequate reserves have remained credible, but high debt and the island’s dependence on tourism create vulnerability to external shocks. The risk of doing business is medium-high and banking-sector vulnerability is medium. The government’s inability to provide stimulus is medium, reflecting improved fiscal credibility but limited space for large discretionary spending. Barbados’ strong institutions, successful IMF engagement and climate-finance leadership are important positives. However, high public debt, a narrow economic base and acute climate exposure mean the country remains more vulnerable than its political stability alone would suggest.

Bermuda (BMU)

Bermuda remains medium-low overall, supported by stable institutions and its globally important insurance and reinsurance sector. Political violence is low, while legal & regulatory risk, supply-chain disruption and political interference are medium-low. Bermuda benefits from stable democratic institutions, British Overseas Territory status and a sophisticated legal framework supporting its global insurance and reinsurance industry. The business environment is generally predictable, although the economy is concentrated in international financial services and remains exposed to changes in global tax, insurance and regulatory standards. The new corporate income tax regime has materially strengthened government revenue but also requires careful implementation to preserve Bermuda’s competitiveness. Economic conditions remain favourable. The government expects real GDP growth of around 2.7% in FY2026/27, supported by international business, insurance and investment.

Real GDP grew modestly in late 2025, while business investment strengthened and the tourism sector recorded higher visitor spending despite only limited growth in arrivals. Bermuda’s fiscal position has improved markedly. Moody’s upgraded the sovereign rating from A2 to A1 in May, while other major agencies maintain strong investment-grade assessments. Net debt is expected at around 27% of GDP in FY2026/27. Sovereign non-payment risk and the government’s inability to provide stimulus are therefore medium-low, while exchange transfer risk is low. The Bermuda dollar is pegged one-for-one to the U.S. dollar and there are no material concerns over external convertibility for normal commercial transactions. The risk of doing business is medium-low. Banking-sector vulnerability is medium, reflecting the small and concentrated domestic banking system and the economy’s reliance on international financial flows. Supply-chain disruption remains medium-low because virtually all goods must be imported by sea or air and the island is exposed to hurricanes, but logistics infrastructure is generally reliable. Bermuda’s strong institutions, fiscal improvement and globally competitive insurance sector support a low-risk profile, with concentration, climate exposure and international tax-policy changes representing the principal vulnerabilities.

Brazil (BRA)

Overall risk in Brazil remains at a medium rating. The biggest issue remains the outcome of the October presidential election. The most likely 2nd round runoff is between President Lula and right-wing candidate Flavio Bolsonaro, with the economy and crime being the key voter issues. Bolsonaro’s gap in 2nd round run off polls has narrowed back to 5-8%, after Bolsonaro in the spring was hurt by reports that he sought a loan from the owner of Banco Master that has been involved in a scandal. This means that the election race could be close by October. Trump’s dislike of Lula could also become an election issue, given the new tariffs imposed on Brazil and Trump’s overt support for Flavio Bolsonaro. Given this Trump administration pressure, Lula is looking to build closer ties with other countries across the world. The EU is keen to work with Brazil on its large rare earth mineral deposits (2nd only to China), which Trump wants to exploit if Bolsonaro wins. Oil exports to China and India have also increased since the start of the Iran war.

The critical long-term economic issue is the budget deficit and general government debt trajectory, with the latter forecast at 96.5% of GDP in 2026, according to the IMF. While the government has pledged a primary surplus from 2026, debt servicing costs are now 7% of GDP. If Lula is reelected, then he could be too slow on fiscal consolidation and this could cause post-election bond turbulence. Thus, sovereign non-payment risk is medium-high. If fiscal consolidation is not seen post-election, we think it could cause domestic financial tensions in the coming years. The long-term fiscal problems also mean that the risk of doing business remains high. Economic growth is projected by the IMF to slow to 1.9% in 2026, as the lagged effects of ultra-restrictive monetary policy continue to feed through (the central bank has started cutting but is cautious due to the Iran war energy price shock). The IMF forecasts 4.0% inflation in 2026 and 3.4% in 2027 respectively.

El Salvador (SLV)

El Salvador remains medium-high overall, with improved physical security offset by institutional and fiscal concerns. Political violence is medium-high, legal & regulatory risk is high and political interference is medium-high. President Nayib Bukele remains extremely dominant following the sharp reduction in gang violence under the state of emergency, but the concentration of power has weakened institutional checks and raised concerns over due process, arbitrary detention and judicial independence. Constitutional changes have opened the way for indefinite presidential re-election, and in June Bukele registered for his party’s nomination ahead of the 2027 election, strengthening expectations that he will seek another term. The security gains remain a major economic positive, but they coexist with a much more centralised political system.

The IMF expects GDP growth of around 3.3% in 2026 and inflation of approximately 2.5%. Tourism, remittances, construction and improved domestic security are supporting activity, while dollarisation limits currency volatility. The risk of doing business is medium-high, reflecting stronger physical security but continuing concerns around regulation, state intervention and institutional independence. Supply-chain disruption is medium. Sovereign non-payment risk remains medium-high and the government’s inability to provide stimulus has eased from medium-high to medium. El Salvador’s debt burden remains high, and the country is implementing reforms under an IMF programme aimed at improving fiscal sustainability, transparency, reserve buffers and financial governance. The programme has also sought to limit public-sector exposure

to Bitcoin-related risks. Exchange transfer risk is medium. Formal dollarisation removes conventional exchange-rate risk, but balance-of-payments pressures and financial-sector liquidity still matter. Banking-sector vulnerability is medium-low, with banks generally well capitalised and supported by remittance inflows. The government’s success in reducing homicide and extortion has materially improved everyday business conditions, yet the long-term risk profile will depend on whether fiscal consolidation can be sustained without undermining growth and whether political institutions retain sufficient independence. Continued concentration of power or a loss of IMF programme credibility could offset much of the benefit from improved security.

Guatemala (GTM)

Guatemala remains medium-high risk rating overall, with governance and security risks offsetting relatively strong macroeconomic fundamentals. Political violence is medium-high, legal & regulatory risk is high, supply-chain disruption and political interference are medium-high, while the risk of doing business is also medium-high. President Bernardo Arévalo’s anti-corruption agenda continues to face resistance from parts of Congress, the prosecution service and the judiciary, contributing to institutional confrontation and uncertainty ahead of the 2027 election cycle. Organised crime, extortion and gang violence remain important security concerns, while weak public institutions and slow judicial processes complicate contract enforcement. Infrastructure deficiencies, particularly roads and logistics, also constrain competitiveness and explain part of the medium-high supply-chain rating.

The macroeconomic position is considerably stronger. The IMF expects growth of around 3.8% in 2026 after Q1 activity expanded by 4.4% year-on-year. Private consumption is supported by exceptionally strong remittance inflows from Guatemalans abroad, while FX reserves reached around USD32.7 bln and the 2025 current-account surplus was approximately 4.7% of GDP. Inflation is expected to remain within the central bank’s 4% ±1 percentage point target range by the end of 2026, allowing monetary policy to remain broadly supportive. Sovereign non-payment risk is medium, exchange transfer risk is medium-low and the government’s inability to provide stimulus is medium-low. Public debt is low at around 27% of GDP, providing meaningful fiscal resilience, although chronically weak tax collection limits the government’s ability to address infrastructure, education and healthcare gaps. Banking-sector vulnerability is also medium-low, supported by stable capitalisation and liquidity. The main external vulnerability is Guatemala’s dependence on U.S. remittances: tighter U.S. immigration policy or weaker U.S. employment could reduce household income and domestic demand. Guatemala’s strong balance sheet and conservative macroeconomic management provide a buffer against shocks, but corruption, organised crime, infrastructure deficiencies and political confrontation continue to prevent the country from achieving a lower overall risk rating.

Mexico (MEX)

Mexico’s overall risk is medium-high. The critical issue for 2026 is the renegotiation of the USMCA agreement with the U.S. Though Mexico’s relationship with Trump is better than Canada, the USTR decision not to approve an extension means an annual review from 2027 now occurs on top of the current 2026 review. Trump will likely deliver more threats to get concessions that can be included in bilateral addendums. On balance, president Sheinbaum will still likely concede in the USMCA trade battle to win the wider war of keeping most Mexican exports going to the U.S. In the end, we see a trade deal by late 2026/early 2027. Even so, Sheinbaum’s Morena party is opposed to Trump’s calls for present and former Mexican politicians to be prosecuted by the U.S. DOJ. This could mean intermittent tension with the U.S. Meanwhile, Sheinbaum’s average approval rating has modestly fallen to 60%, reflecting concerns over the weak economy and continued high level of violence (amplified by the cartels). Political violence risk in Mexico therefore remains high. Legal and regulatory risk is also high, as the left-wing coalition led by MORENA controls both houses and could potentially lead to regulatory changes in an anti-market manner. Sovereign non-payment risk is medium, as the government debt level is projected to be 62.7% in 2026 according to the IMF, and the government is currently undergoing a fiscal consolidation process to stabilize the debt/GDP ratio. The inability of the government to provide stimulus remains at a medium rating, reflecting the fiscal consolidation. Exchange transfer risk is medium, as the country holds an adequate level of foreign currency reserves alongside a current account that is in broad balance.

Peru (PER)

Peru remains medium risk rating overall, with political instability remaining the principal constraint. Political violence is medium-high, political interference is medium-high and legal & regulatory risk remains high. Keiko Fujimori was sworn in as president on July 28 after one of the closest elections in Peru’s modern history, defeating leftist Roberto Sánchez by a narrow margin. International observers did not substantiate fraud claims, but the disputed result, protests and the continuing polarisation around the Fujimori name underline the fragility of the political environment. Fujimori’s Popular Force is the largest bloc in the newly restored bicameral Congress but does not hold an outright majority, meaning coalition-building will be essential. Peru has now had ten presidents since 2016, and repeated clashes between presidents and Congress remain a core institutional risk. Fujimori has promised fiscal discipline, tougher action on crime and a more business-friendly approach, including efforts to accelerate delayed mining investment.

Economically, conditions are more supportive than the political backdrop. The IMF expects GDP growth of about 2.8% in 2026, while the central bank has raised its own projection to around 3.4% on stronger domestic demand and private investment. High copper and gold prices are supporting export earnings, and the current account remains in surplus. Inflation is expected to settle near 2.5% by year-end after temporary energy-related pressure. Supply-chain disruption is rated medium, reflecting exposure to mining stoppages, road blockades and severe weather. Congress approved a USD2.8 bln supplementary budget in July to finance infrastructure, salaries, crime prevention and preparations for El Niño, although the fiscal council warned that the additional spending reduces room to rebuild buffers. The risk of doing business is medium, banking-sector vulnerability and the government’s inability to provide stimulus are medium-low, while sovereign non-payment risk is medium and exchange transfer risk is low. Public debt remains modest by regional standards at roughly one-third of GDP, reserves are substantial and the sol is freely convertible. Renewed political instability, however, social conflict around mining or excessive fiscal loosening could quickly undermine investor confidence.

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