One Third of Local Debt to Shift Under New Governors

In June, nine states in Mexico will hold gubernatorial elections. These states collectively account for a third of the debt held by entities and municipalities, as reported by the Ministry of Finance and Public Credit. While none of these states are currently on alert due to their debt levels, managing debt and financial costs will be significant challenges for the new administrations.

According to Ricardo Gallegos, deputy general director of Economic Analysis at HR Ratings, local debt has been reduced since 2015, thanks to the Financial Discipline Law. During the pandemic, state governments did not increase their debt levels but instead utilized available resources to address the crisis. However, even though most state governments have primarily refinanced existing debt rather than acquiring new debt, high financial costs remain a concern for future administrations. Additionally, federal funding for major infrastructure projects has played a role in limiting some states’ debt growth but has also led to a decrease in productive investments.

The Financial Discipline Law requires local administrations to settle short-term obligations at least three months before the end of their term. Most states met this requirement by December except for Yucatán. The Treasury closely monitors the sustainability of state debt, with Veracruz being deemed not at risk except for its significant portion of available resources being used to service financial obligations.

In terms of debt trends, some states have seen reductions in debt balances while others have experienced increases. Guanajuato, Jalisco, and Yucatán saw nominal increases in debt with significant growth in Yucatán under the current administration. Adjusting for inflation, only Guanajuato and Jalisco saw an increase over the past five years while Yucatán had a significant reduction due to policy changes implemented by its current administration.

Therefore, managing debt levels and financial costs will be critical challenges for new administrations in these nine states as they seek to ensure financial stability in the years ahead.

To achieve this goal, it is crucial that new administrators monitor their state’s sustainability carefully and maintain a balance between refinancing existing debts and investing in productive projects that create jobs and drive economic growth while keeping public spending under control.

Overall, reducing indebtedness must be an integral part of any government’s policies during election season or post-election period as it helps pave the way towards better governance outcomes that benefit all citizens across different regions of Mexico.

By Riley Johnson

As a content writer at newsmol.com, I dive into the depths of information to craft compelling stories that captivate and inform readers. With a keen eye for detail and a passion for storytelling, I strive to create engaging content that resonates with our audience. Whether it's breaking news, in-depth features, or thought-provoking opinion pieces, I am dedicated to delivering high-quality, informative content that keeps readers coming back for more. My goal is to bring a fresh perspective to every article I write and to make a meaningful impact through the power of words.

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