energy and telecommunications. 5 the financial impact on mexico the adverse international environment has also had financial repercussions on mexico through two main channels. the first is a slowing in portfolio investment inflows, which nevertheless have tended to remain positive in contrast to those of many other emerging economies, where they have been significantly negative. as a result, nonresident holdings of peso - denominated government securities, a favorite for fixed - income investors for several years, continued to increase, and since 2015 have remained roughly constant in nominal terms. hence, the share of these holdings in the total outstanding has recently declined only moderately. however, this proportion is still one of the highest among emerging - market local - currency - denominated government securities. high and stable exposure to foreign holdings is a sign of strength. the confidence shown by investors in mexico possibly reflects the depth of the bond and peso markets and the credibility of the economic policy framework. the resilience of foreign portfolio investment has contributed to the relative stability shown by medium - and long - term market interest rates for government bonds. maintaining the preference of nonresident investors is obviously of paramount importance and can never be taken for granted. the second route for external impact has been in the public finances, originating, again, in lower oil prices. as with other large oil producers, pemex, the state - owned oil extracting enterprise, has seen its financial conditions deteriorate significantly. this, along with more than a decade - long decline in oil production, has resulted in a considerable increase in credit - risk perception. the rise for pemex credit default swap ( cds ) spreads has been more acute than for many other major oil - producing firms. more importantly, lower oil prices have dented the prospects for healthy mexican public finances. the fragility is due, first, to the fact that because pemex is state - owned, markets assume the government will back its debt under the pressure of contingencies. second, public - sector budgeted revenues depend heavily on oil income, which accounts for slightly less than one - third of the total, among the highest ratios in the emerging - market universe. 6 analysts ’ forecasts for u. s. industrial production and mexico ’ s gdp are, respectively, 0. 3 and 2. 4 percent for 2016, and 2. 3 and 2. 8 percent for 2017 ; see blue chip indicators 2016, april. for a discussion of mexico ’ s

“ non - linear exchange rate pass - through in emerging markets, ” imf working paper wp / 16 / 1, january. for a recent discussion of slack in the economy, see palacio, s. and g. lozano ( 2016 ). “ mexico : potential gdp, output gap, and inflation, ” economic research global data watch, april. bis central bankers ’ speeches finally, although actions by the u. s. federal reserve must continue to be taken into account, the need for further adjustments may arise independently of u. s. policy moves, for example if inflation expectations become misaligned as a result of international volatility. concluding remarks mexico has set itself apart from other emerging economies in some respects. however, to an extent, markets continue to treat the country as if it were an average case, and sometimes, below the mean in its asset class. this implies that mexico must make further progress on possible sources of differentiation. these include improvement of macroeconomic fundamentals, with sustainable public finances and timely monetary - policy adjustments to consolidate price stability. a well - capitalized and highly liquid banking system must continue to be the case. structural reforms should also be implemented appropriately. finally, mexico ’ s potential growth will increase if improvements to the rule of law and public security are attained. bis central bankers ’ speeches