S&P Global Ratings projects gross commercial borrowing in the Americas will reach an equivalent of $4.768 trillion in 2022, down almost 20% from 2021. We project the total commercial borrowing by sovereigns in the Americas to decline moderately as a share of regional GDP in 2022. The Americas includes the U.S. and Canada and 29 Latin American and Caribbean sovereigns that we rate.

We project gross commercial borrowing of the U.S. and Canada will reach an equivalent of $4.3 trillion in 2022, decreasing 20% from 2021 (due mostly to lower borrowing by the U.S.). We estimate that the U.S. will account for 86% of gross debt issuance in all of the Americas, in line with last year.

We project gross commercial borrowing of the 29 Latin American and Caribbean sovereigns that we rate will reach an equivalent of $487 billion in 2022, down 4% from 2021. However, gross total borrowing, including bilateral and multilateral debt, will decrease only 1% from 2021 (see chart 1). We estimate that Brazil and Mexico will account for slightly more than 70% of gross commercial issuance within this region of the Americas. Moreover, we project that overall commercial borrowing will decline moderately in 2022 to 9.5% of Latin American and Caribbean regional GDP, following a historical peak of 12.1% in 2020 and 10.5% in 2021.

Chart 1

Latin America and the Caribbean has a higher share of sovereign debt denominated in foreign currency than other regions. 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 decrease in gross commercial borrowing this year (excluding the U.S. and Canada) is in Brazil (decreasing by $16 billion), followed by modest decreases in Colombia, Chile, and Costa Rica. In contrast, total borrowing by Argentina (likely to be local because of lack of access now to external markets) may increase by $16.6 billion and borrowing by Mexico by $3.6 billion. (For a global perspective on sovereign borrowing, see "Sovereign Debt 2022: Borrowing Will Stay High On Pandemic And Geopolitical Tensions," April 5, 2022.)

Most of the new sovereign debt will go to refinancing maturing debt. Some 68% (or $2.95 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 $1.34 trillion.

Excluding the U.S. and Canada, about 52% (or $254 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 $234 billion (see tables 1-3). Consequently, we project that rated Latin American and Caribbean sovereigns' commercial debt stock will reach an equivalent of $2.5 trillion by the end of 2022, increasing 9.7% compared with 2021. As a share of GDP, the stock of commercial debt will reach 49.6% in 2022, up from 48.1% in 2021, 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 $82.2 billion in 2022 (or about 1.6% of regional GDP) from $96.9 billion the previous year.

In the Latin American and Caribbean region, we project that during 2022 the share of issued commercial sovereign debt rated 'BBB-' or higher (investment grade) will be around 28% of total commercial debt, similar to the previous year. Mexico and Chile will account for the bulk of the issuance of investment-grade debt. About 60% of the commercial debt stock in 2022 will likely be issued by sovereigns rated in the 'BB' category.

Brazil is likely to account for 53% of all commercial issuance this year, followed by Mexico (20.6%). Argentina will also issue a substantial amount of commercial debt, likely accounting for 10% of all commercial issuance, given our estimations.

Brazil is likely to end the year with nearly 45.6% of the total stock of commercial debt issued by sovereigns in Latin America and the Caribbean, followed by Mexico, with around 20.5%. We project Argentina will have the next largest debt stock (8.5% of the regional total), followed by Colombia (6.4%). Total commercial debt stock for Latin American and Caribbean rated countries will remain around 50% of regional GDP, still high after peaking in 2020. The effective interest rate is also likely to increase in 2022 after an important drop in 2020 and a modest increase in 2021 (see chart 2).

Chart 2

According to our calculations, the U.S. and Canada face high debt rollover ratios (including short-term debt), at 27% and 12.1% 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 during the pandemic 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 will most likely decline in 2022 as interest rates go up.

According to our calculations, Aruba will face the highest debt rollover ratio of the Latin American and Caribbean region, 31.1% of its GDP. The Bahamas, Belize, Argentina, Barbados, and El Salvador will face some of the highest debt rollover ratios (including short-term debt) of rated Latin American and Caribbean sovereigns, at 22.6%, 18.7%, 13.6%, 10.8%, and 10.5% of their GDP, respectively. The high rollover ratios, both in terms of total debt stock and 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 Post-Pandemic Recovery

A combination of economic recovery and improved fiscal balances after the downturn caused by the pandemic will modestly reduce the average debt burden (measured as a share of GDP) of many sovereigns in the Americas, including Canada and the U.S., in 2022. However, the debt burden is currently higher than pre-pandemic levels across the region and is likely to remain elevated in the coming couple of years.

The wealth, resilience, economic diversity, and institutional strengths of Canada and the U.S. enabled them to adopt strongly countercyclical fiscal policy to combat the pandemic without jeopardizing the sovereign credit ratings. The two countries are likely to account for almost 90% of commercial debt issuance in the Americas in 2022 (see chart 3). We expect that economic growth, withdrawal of fiscal stimulus, and still moderate interest rates will reduce the fiscal deficit in 2022 and largely stabilize the net debt burden in both countries over the next couple of years.

Chart 3

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 economic vulnerabilities, weakening already weak public finances, resulting in lower credit ratings.

The sovereign rating trajectory of the region over the next couple of years will depend in large part on the rate of GDP growth, the government's fiscal policy, and the cost of money. The recent rise in inflation (and inflation expectations) across much of the world has contributed to higher interest rates, reducing the fiscal room for maneuver for many governments. Almost all central banks in the Americas, including in Latin America and the Caribbean, reduced their policy rates during 2020 to help cope with the sharp economic downturn. Many regional central banks have been raising their policy rates in recent months in response to rising inflation. The world's most influential central bank, the U.S. Federal Reserve, is likely to raise its policy rate several times this year, signaling an important shift of monetary policy.

Our sovereign ratings reflect the growing debt burden in many countries and 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. Sovereigns with a high share of foreign currency-denominated debt are more vulnerable to adverse movements in the exchange rate that could substantially boost their debt servicing bills. Similarly, sovereigns with greater reliance on short-term and floating-rate debt are more vulnerable to sharp spikes in interest rates.

Several governments (including Brazil, The Bahamas, and El Salvador) face high debt service burdens, with their interest payments likely to exceed 20% of their revenues in 2022 (see chart 4). Higher interest rates would further reduce their fiscal room for maneuver. In contrast, investment-grade sovereigns like Panama, Mexico, and Uruguay have more moderate debt service burdens of 10%-15% of their revenues. Chile and Peru, the highest-rated sovereigns in Latin America, have comparatively low debt service burdens, both below 10% of their revenues.

Chart 4

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 likely to be only 5% of total sovereign debt in Brazil in 2022, mitigating the risk embedded in its debt burden. Foreign currency debt is likely to be about 32% of total sovereign debt in Chile, 21% in Mexico, 41% in Colombia, and 50% in Peru (see chart 5). However, there are 12 sovereigns in the Americas projected to have over 50% of their total debt denominated in foreign currency in 2022, same as in 2021. In addition, four have exclusively foreign currency debt: Ecuador, El Salvador, Nicaragua, and Panama.

Chart 5

Much of Latin America and the Caribbean faces the risk of prolonged modest GDP growth, along with public demands for more social spending. That, plus potentially higher interest rates than currently foreseen, could make it harder for governments to make timely fiscal adjustments needed to stabilize their debt burdens. Most of our negative outlooks in the region reflect the risk of this scenario.

These estimates account only for the U.S., Canada, and the 29 Latin American and Caribbean sovereigns we rate (see tables 5 and 10). 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 2022. Estimates that we express in dollars are subject to exchange-rate variations.

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