S&P Global Ratings projects gross commercial borrowing in the Americas, which includes the U.S. and Canada and 28 Latin American and Caribbean sovereigns that it rates (excluding Venezuela), will reach an equivalent of $5.873 trillion in 2021, increasing more than 30% from 2020. However, excluding the U.S., we project the total commercial borrowing by sovereigns in the Americas to decline moderately in absolute terms and as a share of regional GDP in 2021.

S&P Global Ratings projects gross commercial borrowing of the U.S. and Canada will reach an equivalent of $5.4 trillion in 2021, increasing more than 30% from 2020 (due entirely to higher borrowing by the U.S.). We estimate that the U.S. will account for slightly more than 88% of gross issuance in all of the Americas, up from 84% last year.

S&P Global Ratings projects gross commercial borrowing of the 28 Latin American and Caribbean sovereigns that it rates (excluding Venezuela) will reach an equivalent of $458 billion in 2021, decreasing 5% from 2020. We estimate that Brazil and Mexico will account for almost 70% of gross issuance within this region of the Americas. Moreover, we project that overall borrowing will decline moderately to 10.3% of Latin American and Caribbean regional GDP, following a historical peak of 11.6% last year.

The Latin American and Caribbean region as a whole has a higher share of sovereign debt denominated in foreign currency compared with other regions of the world. However, most of the gross borrowing in Brazil, Mexico, Colombia, and Chile will be done in the local market in local currency. (All debt issued by the U.S. and nearly all issued by Canada is in local currency.)

The largest projected nominal increase in gross commercial borrowing this year (excluding the U.S. and Canada) is in Brazil (increasing by $76 billion), followed by modest increases in Colombia, Chile, and Peru. In contrast, total borrowing by Mexico may decline by $11.5 billion and borrowing by the Dominican Republic by $6.2 billion. (For a global perspective on sovereign borrowing, see "Sovereign Debt 2021: Global Borrowing Will Stay High To Spur Economic Recovery," Feb. 25, 2021.)

Some 45% (or $2.45 trillion) of gross long-term commercial borrowing by the U.S. and Canada will be to refinance maturing long-term commercial debt, resulting in estimated net long-term commercial borrowing of $2.96 trillion.

Excluding the U.S. and Canada, some 46% (or $211 billion) of the other sovereigns' gross long-term commercial borrowing will be to refinance maturing long-term commercial debt, resulting in estimated net long-term commercial borrowing of $247 billion (see tables 1-3 and chart 1). Consequently, we project that rated Latin American and Caribbean sovereigns' commercial debt stock will reach an equivalent of $2.4 trillion by the end of 2021, increasing 15.7% compared with 2020. As a share of GDP, the stock of debt will reach 53.1% in 2021, up from 49.1% in 2020, according to our projections. The projected rise in the debt-to-GDP ratio is subject to uncertainty from potential changes in the exchange rate in many countries. We expect that outstanding short-term commercial debt will fall slightly to $139.8 billion in 2021 (or about 3.1% of regional GDP) from $142.2 billion the previous year.

In the Latin American and Caribbean region, we project that during 2021 the share of issued commercial sovereign debt rated 'BBB-' or higher (investment grade) will be around 37% of total commercial debt, similar to the level in the previous year. Mexico and Colombia will account for the bulk of the issuance of investment-grade debt. About half of the commercial debt stock in 2021 will likely be issued by sovereigns rated in the 'BB' rating category.

Brazil is likely to account for 56% of all commercial issuance this year, followed by Mexico (12.6%). Venezuela will also issue a substantial amount of commercial debt in its local market this year. However, we have excluded Venezuela's debt issuance and debt stock from our projections because of the distortions created by hyperinflation and multiple exchange rates in that country. We rate Venezuela 'SD', reflecting its default on foreign currency debt.

Brazil is likely to end the year with nearly 46.5% of the total stock of commercial debt issued by sovereigns in the Latin American and Caribbean region, followed by Mexico, with around 19.8%. We project Argentina will have the next largest debt stock (8.4% of the regional total), followed by Colombia (6.6%).

According to our calculations, the U.S. and Canada face the highest debt rollover ratios (including short-term debt) in the Americas, at 32.9% and 16.8% of their GDP, respectively. However, deep capital markets and ample monetary flexibility mitigate the credit risk embedded in the tenor of their debt. The high ratio for the U.S. reflects the government's decision last year to more than double the issuance of short-term Treasury Bills as interest rates fell to record lows. The stock of such short-term debt may decline in 2021.

According to our calculations, The Bahamas, Belize, Brazil, and Argentina will face some of the highest debt rollover ratios (including short-term debt) of rated Latin American and Caribbean sovereigns, at 14.7%, 13.6%, 13.4%, and 12% of their GDP, respectively. The high rollover ratios, both in terms of their total debt stock and their GDP, in these low rated sovereigns signal vulnerability to adverse developments that could hurt their ability to refinance. The debt rollover ratios for infrequent issuers with small but lumpy debt obligations can be very low if little or no debt matures in a given year and if they do not have a significant amount of short-term debt. The rollover ratios of sovereigns with higher proportions of official debt tend to be lower because official debt typically has longer maturities than commercial debt.

Challenge Of Managing Higher Debt

The combination of a sharp economic downturn and large fiscal stimulus by the government contributed to net general government debt rising more than 20 percentage points of GDP in Canada and by around 18 percentage points in the U.S. in 2020. However, the wealth, resilience, economic diversity, and institutional strengths of both these countries allowed them to adopt strongly countercyclical fiscal policy to combat the pandemic without jeopardizing their credit ratings. We expect that economic recovery, gradual withdrawal of fiscal stimulus, and low interest rates will reduce the fiscal deficit in 2021 and largely stabilize the net debt burden in both countries over the next couple of years.

In contrast, sovereign ratings in the Latin American and Caribbean region suffered from the negative impact of the pandemic despite smaller increases in the net general government debt burden compared with the U.S. and Canada. In many cases, the pandemic worsened existing fragilities, adding pressure to already weak public finances and, in much of the region, exacerbating a poor record of GDP growth.

We downgraded 11 sovereigns in the region in 2020 and currently have nine negative outlooks, more than in other regions. The negative rating actions reflect rising sovereign debt, weaker external positions (due largely to growing external debt), poor GDP growth prospects after the pandemic recedes, and potential worsening of our institutional assessments. The net general government debt burden is likely to have increased last year by more than 10 percentage points of GDP in Argentina, Bolivia, Brazil, Chile, Colombia, Dominican Republic, El Salvador, Uruguay, and Peru. There was a similar sharp increase in the Caribbean, with debt rising about 20 percentage points of GDP or more in Aruba, Curacao, Turks and Caicos Islands, and Suriname, and by over 10 points in Belize, Jamaica, and Trinidad and Tobago.

The long-term impact of rising sovereign debt depends on, among other things, the cost of funding (which partly reflects the risk of inflation), the rate of economic growth, and the government's budget balance excluding interest payments. The cost of funding is likely to remain moderate or low for many regional sovereigns, due to both global conditions as well as domestic factors. Inflation has remained low throughout the region, except in Argentina, Venezuela, and Suriname. As a result, almost all central banks in Latin America and the Caribbean reduced their policy rates during 2020, some (Chile, Peru, and Jamaica) below 1%.

While low interest rates (compared with historical levels) will help contain vulnerabilities, they need to be complemented by higher GDP growth to stabilize the debt burden. However, the region's economic growth was low before the pandemic and may remain modest in the next couple of years. We currently apply a negative adjustment for poor long-term GDP growth to our economic risk assessment for 14 regional sovereigns. Returning to GDP growth remains critical for sovereign creditworthiness due to its positive effects on public finances (especially tax revenue), social stability, and the overall health of the financial and corporate sectors.

Recent negative economic and social trends across the region have already contributed to growing public alienation from political parties and leaders, as well as demands for more social spending. That, in turn, could make it harder for governments to make timely fiscal adjustments (needed to stabilize the debt burden) as the pandemic recedes, contributing to persistently weaker public finances and low growth. Most of our negative outlooks in the region reflect the risk of this negative scenario.

Our sovereign ratings reflect the growing debt burden in many countries and also take into account the composition of the debt. Some sovereigns (typically investment-grade) have managed to limit the vulnerability embedded in their debt by mitigating exchange-rate and interest-rate risk.

Debt denominated in foreign currency typically accounts for a limited share of total debt in investment-grade sovereigns, thanks to the development of local capital markets that provide alternative sources of funding when external financing falls. Foreign currency debt is about 23% of total sovereign debt in Chile, 24% in Mexico, 37% in Colombia, and 43% in Peru. It is only 5% of total debt in Brazil. However, there are 10 sovereigns with over 50% of total debt in foreign currency and five have exclusively foreign currency debt: Bermuda, Ecuador, El Salvador, Nicaragua, and Panama.

These estimates account only for the U.S., Canada, and the 28 Latin American and Caribbean sovereigns we rate, excluding Venezuela (see the full list in table 5). Our estimates focus on debt issued by a central government in its own name and exclude local government and social security debt, as well as debt issued by other public bodies and government-guaranteed obligations. In terms of commercial debt instruments, our estimates for long-term borrowing include bonds (with maturities of more than one year) issued either on publicly listed markets or sold as private placements, as well as commercial bank loans.

In addition to commercial debt, some of the estimates we use in this study include official debt. We do not include government debt that central banks may issue for monetary policy purposes in some countries. All reported forecast figures are our own estimates and do not necessarily reflect the issuers' projections. Our estimates are informed by our expectations regarding central government deficits, our assessment of governments' potential extra-budgetary funding needs, and our estimates of debt maturities in 2021. Estimates that we express in dollars are subject to exchange-rate variations.

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Table 5

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Chart 1

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