Mexico issued more debt last year than any other country in Latin America, according to a report published by the Economic Commission for Latin America and the Caribbean (Cepal). The “Preliminary Balance of the Economies of Latin America and the Caribbean” shows that in the first ten months of 2022, Mexico issued 28% of the bond placements in international markets in the region. It is followed by Chile with 19% and Brazil with 17%. The data combines both government and corporate emissions.
As a result of the global inflationary phenomenon that has been going on since the end of 2021, the central banks in most economies have raised their interest rates. This has raised financing costs, especially for emerging economies. “As global financing conditions continued to tighten, debt issuance from Latin America and the Caribbean in international markets fell by almost 60%,” says the report, signed by José Manuel Salazar-Xirinachs, Executive Secretary of ECLAC. , and your team.
But in Mexico, the impact seems to be less. The country also stands out as the one that placed the highest sovereign debt, with 32% of the total in the entire region. This has to do with the refinancing that the Treasury Secretary has done to reduce interest payments in exchange for new terms. “Mexico has financial cushions to protect itself against eventual external shocks, for which successful refinancing operations have been carried out that have made it possible to reduce, for example, 70 percent of the debt service payment by 2025,” said Secretary Rogelio Ramírez de la O on January 17, according to a statement. Mexico has one of the lowest fiscal deficits in the region, below 40% in relation to the Gross Domestic Product (GDP).
About 65% of the income from sovereign debt issuances between January and October 2022 were used for liability management and to cover the financing needs of the national budget, ECLAC said. Almost 60% of all corporate debt issuances were from Brazilian (35%) and Mexican (24%) companies. The region’s corporations placed 29,000 million dollars in international bonds in this period of time.
“Mexico has been very strict in the fiscal sense since the beginning of the pandemic,” said Todd Martínez, an analyst at the credit risk rating agency Fitch Ratings, on Monday, “this is why we have not seen them withdraw from the markets as other of its peer countries. A lower fiscal deficit translates to a better credit rating, as it reflects a better ability to service your debt. The higher the credit rating, the lower interest an issuer pays on its debt.
Fitch expects the Mexican economy to slow down this year, growing just 1.4%, due to the expected impact of a recession in its main trading partner, the United States. “The growth estimate itself is not very good, but considering the context, it does reflect resilience,” Martínez said. The second economy in Latin America was the one that spent the least on economic stimuli during the lockdowns of the pandemic, the analyst highlighted, and this is why the recovery has been the slowest in the region.
Although Mexico was once an oil powerhouse, the country has been a net importer of petroleum products since 2014, so the impact of a drop in prices would not affect it deeply, Martínez said. “The budget for this year, at the moment, is quite covered with respect to oil prices because it is a source of income and something that the government is subsidizing quite a bit,” the Fitch analyst said.
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