Orthodox debt strategy may not pay off for Mexico

Significance

Public debt increased from the second quarter of 2020, mainly due to the sharp economic contraction and peso depreciation.

Impacts

• A debt downgrade would not cut off Mexico’s access to international capital markets, but it would increase borrowing costs significantly.
• Efforts to avoid a higher fiscal deficit, and debt, will weigh on growth expectations for 2021.
• As Mexico becomes less attractive for foreign investors, long-term bond issues in dollars will become more popular than those in pesos.