Mexican States Turn to Long-Term Debt, Putting Future Finances at Risk

State governments in Mexico have chosen to finance projects and balance their budgets through long-term borrowing, with some debts maturing as far out as 2063. According to the National Public Registry of State Financing, states such as Nuevo León, Quintana Roo, and Baja California top the list with the longest-maturity state loans—Nuevo León standing out as the most notable case, having contracted debt in 2014 that will not be paid off for nearly four decades.

This practice, according to public finance experts like Kristobal Meléndez, is part of a strategy aimed at reducing the annual payment burden by gradually shifting the responsibility for repayment to future administrations and, consequently, to new generations of taxpayers. While current residents enjoy the immediate benefits of investments financed with these loans, the obligation to repay extends even to those who haven’t been born yet, raising concerns about intergenerational debt.

Comparing short-term and long-term loans highlights significant differences in interest rates. For example, Nuevo León will pay an interest rate of just 0.09% on its long-term debt, while Michoacán faces a 10.30% rate on a loan set to mature in only three years. These more favorable terms for long-term financing allow for a lower fiscal burden today, though they expand the time horizon for the states’ financial commitments.

Currently, Quintana Roo, Sonora, and Tamaulipas lead the ranking of states with the longest average debt maturities, with terms reaching up to 24.8 years. In contrast, states such as Guerrero, Querétaro, and Sinaloa have loans with much shorter average maturities. However, despite these longer terms, the State Debt Alert System shows that nearly all state governments—except Coahuila—maintain debt levels considered to be sustainable.

Debt sustainability is evaluated based on state revenues and debt levels, following the guidelines set out by the Financial Discipline Law. This law requires that funds obtained through borrowing be used exclusively for productive public investments, which should have an impact on indicators such as economic growth, job creation, infrastructure, and competitiveness.

Nevertheless, states with the highest debt levels—such as Mexico City, Nuevo León, Chihuahua, and Jalisco—also rank at the top in state competitiveness and innovation, according to the Mexican Institute for Competitiveness (IMCO). This suggests that while high indebtedness can pose a long-term fiscal challenge, it can also be tied to significant infrastructure and economic developments, provided it is managed responsibly and transparently.

In conclusion, taking on long-term debt has proven to be a useful tool for Mexican states to implement strategic projects; however, it comes with future fiscal commitments that require oversight and financial discipline. The challenge for state governments will be to ensure that these resources truly fuel sustainable economic growth and that the debt burden does not jeopardize stability for future generations.