DBRS Morningstar Releases Sovereign Debt Sustainability in Latin America After the Pandemic

DBRS Morningstar released a commentary titled “Sovereign Debt Sustainability in Latin America After the Pandemic”.

Public debt ratios across Latin America have markedly increased as a result of the pandemic. The IMF estimates that general government debt for the region as a whole increased by 9 percentage points of GDP from 2019 to 2020. Despite this, some Latin American governments can now borrow in the market at historically low rates as central banks in advanced economies and in emerging markets deliver highly expansionary monetary policy.

This commentary examines the implications of higher public debt on fiscal sustainability in four Latin American countries where DBRS Morningstar has sovereign credit ratings: Brazil (BB (low), Stable), Colombia (BBB, Negative), Mexico (BBB, Negative), and Uruguay (BBB (low), Stable). In our view, the higher debt levels do not substantially increase fiscal sustainability risks over the long term. However, some countries are vulnerable to market risks.

“In the absence of adverse revisions to the medium-term growth or real interest rates, the increase in public debt in 2020 does not have a material impact on the long-term fiscal sustainability challenges facing these Latin American countries,” notes Michael Heydt, Senior Vice President in the Global Sovereign Ratings Group. “However, the pandemic has left public finances in some countries vulnerable to rising interest rates. In the context of sizable financing needs, it will be important to implement credible deficit-reduction plans to help reinforce market confidence and sustain access to low-cost borrowing.”

Notes:
The commentary “Sovereign Debt Sustainability in Latin America After the Pandemic” is available at www.dbrsmorningstar.com.

For more information on our sovereign ratings, visit www.dbrsmorningstar.com or contact us at [email protected].

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