Debt interest payments grow; rate hike decisive

In the third quarter of the year, public and private issuers made transfers for 6,438 million dollars to pay interest on debt in foreign currency, reported Banco de México.

The payment of the yields of public sector issuers for the period from July to September was the highest of the three quarters this year and completed a fourth consecutive quarterly increase.

Analysts from Moody’s rating agency warned that Mexico’s interest payments and income ratio is increasing above the average managed by rating peer countries. In fact, they estimate that for Mexico this relationship will increase 13% this year, which is almost double the average expected for countries that have a rating similar to Mexico’s in the agency, which is 7 percent.

Economists from the Institute of International Finance (IIF) detail that interest payments are the greatest source of risk for the financial and social stability of countries and is related to the upward trend in rates worldwide, particularly those of the United States.

According to information from Banxico, 53% of these resources were disbursed by public sector issuers.

That is, in the period from July to September, 3,439 million dollars that left the country to pay debt interest were disbursed by the government, companies, parastatals, and public companies such as Petróleos Mexicanos (Pemex) and the Federal Electricity Commission (CFE). ; the Bank of Mexico and the Institute for the Protection of Bank Savings (IPAB) as well as state and municipal governments.

IIF strategists, led by Sonja Gibbs, recently warned that debt service will be a significant pressure on the public accounts of the countries and in the event of a rapid increase in world rates, the financial dynamics of issuers could be weakened .

Moody’s analysts have also warned that Mexico’s interest payments weaken its fiscal position.

Information from Banco de México shows that so far this year, this is from the first quarter of 2022 to the third, the accumulated payment for government debt service amounted to 10,264.90 million dollars.

Interests on private debt also accelerate

The rest of the resources documented by Banco de México as debt interest payments in the third quarter, corresponding to 2.999 million dollars, were transferred by private sector issuers.

In fact, the information from the central bank shows that this was the highest quarterly disbursement for this type of issuers in seven quarters, it incorporates a seventh consecutive quarterly increase and represents an increase of 21% compared to the disbursed in the same period of the previous year.

In the nine months of the year reported by Banxico, private sector issuers have transferred abroad the payment of 6,706 million dollars for the service of their debt, an amount that exceeds 5,846 million dollars that they disbursed in the same period of the previous year for this same concept.

The International Monetary Fund (IMF) warned since April that the unprecedented increase in private debt could slow down the economic recovery.

They identified among the vulnerable companies those located in the intensive personal contact services sector that tended to borrow to survive the drop in revenue caused by the pandemic.

Liquidity risk

An analysis developed by Moody’s rating agency warns that as the impact of higher interest rates takes effect in a context of economic slowdown, more liquidity risks are generated for public and private issuers.

In an episode of uncertainty about the path of inflation, volatility can become a constant that requires further tightening of monetary policy, which would trigger greater risk aversion. This environment will reduce net financial inflows and increase the cost of financing.

However, Moody’s experts believe that Mexico’s close relationship with the United States may facilitate market access.

ymorales@eleconomista.com.mx