Latin America Private Sector Debt: Higher Debt Loads, Rising Rates A Challenging Combination

• Fitch Solutions expects that rising interest rates will challenge regional borrowers, even as private sector debt has stabilized after the pandemic in Latin America. Although the company noted the expectation of rate cuts in H2 2023, interest rates will remain well above historical norms through to at least the end of the year.
• While aggregate private sector borrowing in Latin America’s largest markets spiked relative to GDP during the COVID-19 pandemic, this was largely due to a sharp decline in nominal GDP.
• In US dollar terms, debt generally fell in 2020 before rebounding in the following years. As of Q3 2022 (the latest available from the Bank of International Settlements), total private debt rose to US$2.82Tn, up 6.3% from US$2.65Tn in Q419. Relative to GDP, private debt has risen marginally, from 65.0% to 66.8%.
• Among major markets in Latin America, Brazil has seen the largest growth in its private sector debt load in recent years, with Colombia the only other market to see an increase.
• Higher interest rates and concerns about the trajectory of public finances have led to significantly higher bond yields across the region, contributing to the theme for the year that Latin America’s leftist leaders will face policy constraints.
• Market pressure will limit the implementation of transformative spending plans, potentially increasing public frustration with incumbent governments. Interest payments will also eat up a larger portion of government budgets moving forward, leaving less for social spending and investment.

(Source: Fitch Solutions)