The rating agency explained that the growth in debt coincides with the rapid increase in interest rates globally, which has made debt refinancing less and less affordable. “The interest cost of debt, measured as the ratio of government interest payments to revenue, will continue to account for a larger proportion of government budgets,” she noted.
In line with the global trend, the central banks of Latin American countries have raised their reference interest rates to deal with inflation.
In Brazil, the interest rate is 13.8%, in Chile and Uruguay 11.3%, in Colombia 11% and Mexico 10%. Only in Peru is the reference rate below 10% (7.3%), but in 2021 it was 2.5%.
Mexico, which, contrary to other countries, provided much less fiscal aid, cannot ring bells because, Moody’s warned in the report, “a higher burden and interest will weaken the fiscal profile.”
The rating agency estimates that the relationship between interest payments and the country’s income will increase more than 13% this year, above the average of countries with a Low rating (7%), since the country “faces higher interest payments for increases in interest rates.
“After rising significantly during the Covid-19 pandemic, the debt ratios of the largest Latin American sovereigns may approach, but are unlikely to return to, pre-2020 levels in the next 12-18 months,” he said. Moody’s.
The higher debt burdens of countries can also translate into limitations for governments to provide fiscal support to the economy, he warned.
During the pandemic, many governments supported companies and households, financed with debt, however, it is doubtful that they can provide similar support in the face of another severe crisis in the near future “without a negative effect on their credit profiles,” said the rating agency. .
This is due to the debt burden left by the pandemic. “Governments are at greater risk of becoming more vulnerable to a sudden financial shock than they were before debt,” the agency said.