According to S&P Global Ratings, gross commercial borrowing in the Americas will amount to an equivalent of US$5.24 trillion in 2024, up almost 23% from 2023. This is the result of significantly higher borrowing in the U.S. and to a lesser extent in Canada, which outweighs lower projected debt issuance in Latin America. In general, we estimate the total commercial borrowing by sovereigns in the Latin American region to be slightly lower as a share of regional GDP in 2024 compared with 2023, but higher for the U.S. and Canada. The Americas includes the U.S., Canada, and 29 Latin American and Caribbean sovereigns that we rate.

In the U.S. and Canada alone, projected gross commercial borrowing will reach an equivalent of US$4.68 trillion in 2024, increasing 28% from 2023. This is due to higher borrowing from both countries, but mainly from the U.S., with expected issuances around US$1 trillion higher than in 2023. We estimate that the U.S. will account for 86% of gross debt issuance in all of the Americas, similar to previous years.

Brazil, Mexico, Argentina, Chile, and Colombia will be the top 5 Latin American issuers in 2024. Brazil alone will borrow more than the subsequent four sovereigns combined, as it accounts for about half the total commercial long-term borrowing of Latin America. After Brazil, the largest borrower in Latin America is Mexico, with an estimated commercial borrowing of 32% of all commercial issuance this year, followed by Argentina (7.4%) and Chile (2.8%) (see chart 1). In general, gross commercial borrowing of the 29 Latin American and Caribbean sovereigns that we rate will reach an equivalent of US$565 billion in 2024, about 10% lower than its previous peak in 2023.

Chart 1

Chart 2

We project that during 2024, the share of issued commercial sovereign debt rated 'BBB-' or higher (investment grade) in Latin America will be around 37% of total commercial debt, up from 34% in 2023. The rating category in which borrowing will be most concentrated this year is 'BB' with 54% of total commercial borrowing, in line with historical data.

In Latin America, we expect that both Brazil and Mexico will borrow close to the same amount of commercial debt in 2024 as in 2023, and that Argentina will reduce such borrowing by around half in 2024. Conversely, the largest projected increase in gross commercial borrowing in the entire region will be in the U.S. (up by almost $1 trillion, or 28%) (see chart 2). (For a global perspective on sovereign borrowing, see "Sovereign Debt 2024: Borrowing Will Hit New Post-Pandemic Highs," Feb. 27, 2024.)

Chart 3

Much of the general increase in commercial borrowing in the U.S. and Canada will be allocated to refinancing maturing debt. Around 70% (or US$3.3 trillion) of gross long-term commercial borrowing by these two sovereigns will be used to refinance maturing long-term commercial debt, resulting in estimated net long-term commercial borrowing of US$1.37 trillion. In Latin America, about 74% (or US$416 billion) of the sovereigns' gross long-term commercial borrowing will be used to refinance maturing long-term commercial debt, resulting in estimated net long-term commercial borrowing of US$149 billion (see tables 1-2).

Latin America's amortization of maturing long-term debt in 2024 will be equivalent to 6.4% of the region's GDP, down from its peak of 7.6% in 2023. However, according to our projections, this ratio is still 3.5 percentage points higher than the average of the pre-pandemic years (2016-2019). This is a result of higher net borrowing during the height of the pandemic and continued fiscal pressures after the subsequent economic recovery. Amortization of maturing long-term debt as a share of total output in the U.S. and Canada is likely to be higher, around 10.8% of GDP, down from 11% last year. This compares unfavorably with an amortization burden of around 9% of GDP in the pre-pandemic years.

In line with the expected borrowing, total commercial debt stock in the Latin American region will likely reach 46.7% of GDP in 2024, up from 45.9% in 2023. The region's debt stock peaked at 49.3% of GDP in 2020, during the worst moments of the pandemic.

Brazil is likely to end the year with nearly 43.6% of the total stock of commercial debt issued by sovereigns in Latin America and the Caribbean, followed by Mexico, with around 25.4%. We project Argentina will have the next largest debt stock (7.2% of the regional total), followed by Colombia (5.9%).

Foreign-currency-denominated debt in Latin America and the Caribbean is higher than other regions, but some sovereigns in the region stand out for their developed domestic markets. Brazil and Mexico are notable examples of countries that have contained exchange rate risk by borrowing mostly in the local currency in the domestic market. Local currency debt accounts for 96% of Brazil's commercial debt and for 84% in Mexico. All debt issued by the U.S. and nearly all issued by Canada is in local currency.

Short-term commercial debt reached its peak 2020, but it has consistently fallen since then in the Americas as a whole. We project the stock of short-term debt as a share of GDP at 1.8% and 20%, respectively, for Latin America and for the U.S. and Canada in 2024.

According to our calculations, Canada and the U.S. face high debt rollover ratios (including short-term debt), at 14% and 31% 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 came as consequence of a very sharp increase of short-term borrowing during the pandemic.

According to our calculations, The Bahamas will face the highest debt rollover ratio of the Latin American and Caribbean region, at 22.4% of its GDP. Bolivia, Suriname, Brazil, Argentina, and El Salvador will face some of the highest debt rollover ratios (including short-term debt) of rated Latin American and Caribbean sovereigns, at 21.2%, 17.8%, 12.3%, 11.1%, and 10.4% of their GDP, respectively. The high rollover ratios, both in terms of total debt stock and GDP, in these low-rated sovereigns are a vulnerability, especially if faced with adverse refinancing conditions. 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.

Chart 4

Chart 5

Canada and the U.S. are likely to account for about 89% of commercial debt issuance in the Americas in 2024 (and the U.S. alone for 86%). The net sovereign debt burden rose by 10 percentage points of GDP in Canada compared with pre-pandemic levels and rose by nearly 15 percentage points in the U.S. We expect that the net debt burden in Canada will stabilize over the next couple of years but may rise moderately in the U.S. because of higher social spending and other expenditures. However, the wealth, resilience, economic diversity, deep financial markets, and institutional strengths of the two countries should enable them to manage their higher debt burden without jeopardizing the sovereign credit ratings.

We expect GDP growth in Latin America to average 1%-1.5% in 2024, a modest pace of expansion spurred in part by lower interest rates as inflation declines. Financial market activity in early 2024 shows that emerging market sovereigns have been gaining better access to external funding, based in large part on expectations of lower U.S. interest rates over the course of the year. However, the Latin American region's growth rate is, on average, below the growth rate in other emerging markets, especially in Asia. Slow growth will make it difficult, absent fiscal reforms, to run moderate fiscal deficits and thereby contain the burden of sovereign debt.

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 bill. Similarly, sovereigns with greater reliance on short-term and floating-rate debt are more vulnerable to sharp spikes in interest rates. Sovereigns that have successfully developed their local capital markets, often through pension reform, enjoy more access to stable long-term domestic funding, reducing their vulnerability to a loss of external funding.

The growth of domestic pension funds in many Latin American sovereigns over recent decades has helped contain the vulnerabilities of a growing debt burden. Pension fund assets exceed 60% of GDP in Chile and hover around 31% of GDP in Colombia and Uruguay, creating a stable domestic financial market that can purchase long-term sovereign debt (see chart 6). The combination of local currency debt issuance and growing domestic financial markets can reduce the vulnerability of a sovereign's debt burden.

Chart 6

Across the Latin America, many people now consider that pension reform was not as beneficial as first envisaged. Due to low or volatile economic growth and to the large size of the informal sector, many people lack access to any pension or are entitled to very low pension payments because of low contributions over their working life. Hence, governments in Chile, Peru, Colombia, and Mexico have sought to reform their pension systems, seeking to provide broader coverage and higher benefits. The short- and long-term impact of such reform on fiscal policy and domestic capital market development may affect sovereign creditworthiness.

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 was only 4% of total sovereign debt in Brazil in 2023, mitigating the risk embedded in its debt burden. Foreign currency debt was about 36% of total sovereign debt in Chile, 16% in Mexico, 41% in Colombia, and just under 50% in Peru in 2023 (see table 4). However, we project eight sovereigns in the Americas to have over 50% of their total debt denominated in foreign currency. In addition, four have exclusively foreign currency debt: Ecuador, El Salvador, Nicaragua, and Panama.

Sovereigns that have issued a high share of their liabilities through long-term fixed-rate debt are less vulnerable to sudden spikes in interest rates. Such debt accounts for 100% of sovereign debt in Bermuda, Montserrat, and Curacao. Long-term fixed-rate debt accounts for over 80% of total debt in Aruba, Belize, Dominican Republic, Guatemala, Panama, and Peru. In contrast, such debt accounts for less than half of total debt in The Bahamas, Bolivia, Suriname, Brazil, and Uruguay.

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 2023. Estimates that we express in dollars are subject to exchange-rate variations.

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Table 10