Onlookers could be forgiven for seeing Mexico kick off an election year with a record-breaking $7.5bn bond binge and muttering something to themselves about EM investors never learning.
After all, the government is promising an increase in public spending that is forecast to push the fiscal deficit up from 3.3% in 2023 to 4.9% this year.
It sounds like a jarring rise. Yet most of the portfolio managers that placed almost $22bn of orders between them in this week's new issue know that this Mexican government has earned the right to loosen the purse strings and borrow a bit more.
First of all, while its peers in both developed and emerging markets splurged during the pandemic and were left to face the rising in interest rates with elevated debt ratios, Mexico — rightly or wrongly — remained prudent. Fitch expects Mexico’s debt-to-GDP ratio to increase from 46.5% last year to 48.8% in 2024.
Even before the recent rebasing of GDP, Mexico’s latest debt ratio of 49.9% as of April was well below the 56% median for sovereigns rated by the agency.
Moreover, Mexico has spent much of the last 30 years rebuilding its reputation as one of the most reliable borrowers in the world. Witness how predictable the government is in reopening the bond market in January while others attempt — usually in vain — to ‘time’ the market. Mexico always finds investors primed for its paper, and invariably achieves its objectives with each deal.
The whole point of cultivating this reputation is to be able to lean on bond markets for a little bit more cash when required for infrastructure and social spending.
Andrés Manuel López Obrador’s tenure as Mexican president has been far from perfect, but the country's top-level approach to debt management has continued across several different governments. Rightly might the sovereign reap the benefits of its good work.