Mexico’s indebted local
governments could be poised for more borrowing following a
series of landmark economic reforms that seek to streamline
public sector debt while encouraging private capital for
The use of public-private
partnerships for financing projects, under proposed
infrastructure sector reforms, would also help minimize the
burden on local government expenditure, Alfredo del Mazo,
director general of national development bank Banobras, told a
LatinFinance forum in Mexico.
"One of our fundamental challenges is
the management of resources," del Mazo said, adding that
"debt is useful for governments to meet requirements and
demands of its citizens."
Mexico’s government has
sought this year to rein in excessive borrowing by states and
municipalities, which have seen their debt soar in recent
But new rules being discussed at the
national level to limit local government debt are helping to
ease concerns over creditworthiness, said Eduardo
Hernández at Fitch Ratings. "Debt in itself is not bad
and has been utilized to leverage growth," he said, speaking at
Infrastructure and Sub-Sovereign Finance in Mexico
New legislation would likely mean
more responsible debt management from Mexican states –
a fact which could mean a greater role for debt capital
Lawmakers earlier this year passed an
accounting and transparency law for states and municipalities
raising the standard for local governments and Congress is
weighing up fresh initiatives on state and municipal debt
Alberto Ramos, CEO of HR Ratings
said that although Mexico boasts one of Latin
America’s deepest and most liquid local debt
capital markets, sub-sovereign issuers must still rely on bank
debt because investors have shown "little interest" in buying
Ramos said a mismatch between
states’ short-term borrowing needs and the
longer-term horizon of institutional investors was largely to
blame, but he added that the mismanagement of short-term debt
by some state borrowers remained a source of investor
Investors may also be wary of the
reputations of local governments, following the travails of
several heavily indebted states since 2009 – most
notably Coahuila, which was forced to renegotiate with
creditors in 2011.
"Mexico is a young debt market of
around 12- 13 years old. In comparing the debt metrics of
Mexico to other countries like Brazil, Mexican debt levels are
very low," Alejandro Olivo at Moody's said.
Recent cases of non-compliance with
debt payments are characteristic of a market still at a "basic
phase of development," he said.
Experts told the LatinFinance forum
that state and municipal debt is nevertheless "manageable" and
is lower as a proportion of GDP than that of countries
including Canada and Brazil.
Sub-sovereign debt represents around
2.8% of GDP, compared to 11.6% in Brazil, 18% in the US and 38%
in Canada, according to Banobras.
On sub-sovereign financing, at least
29 Mexican entities count on Banobras financing which
represents at least MXP5bn and represent 27% of total debt of
A financial sector reform as well as
legislation to overhaul infrastructure development could also
boost the finances of state and municipal governments.
Del Mazo said it was "the
responsibility" of public and private sector lenders, local
governments and investors "to make use of these tools and
contribute to national infrastructure development."
"The country is going through a
transformational period, and now is the moment to make urgent
changes to move Mexico forward," he said.
Proposed reforms will enhance
Banobras’ role as responsible creditor, Del Mazo
added. Banobras aims to help states and municipalities boost
their revenues and transparency, make efficient use of their
resources, while promoting responsible debt management, he