Mexico'snew financial discipline law imposing limit on debt is a credit positive forthe country's regional and local governments, Moody's said April 5.
Under thelaw, an alert system will be put in place starting April 2017 and in which debtwill categorized as either "sustainable," "underreview," or "high." The category will determine the limit onannual borrowing as a percentage of available revenues, Moody's said. The lawwill impose limits on short-term debts first, while restrictions on long-termwill follow.
Thelegislation includes three core purposes: to improve transparency, to curb thegrowth of debt and to improve financial management.
"Thelaw should lead to greater visibility on the credit profiles of regional andlocal governments," Maria del Carmen Martinez-Richa, a vice president atMoody's, said. "That will allow for better monitoring of their debtindicators, and potentially improving their market access."
However,the benefits of the law may only manifest in the long-run, Moody's said, giventhat full compliance is not scheduled until 2022 and that may even bepostponed.
"Thesuccess of the law will depend on its proper enforcement, and whether it isbacked by credible sanctions," Martinez-Richa noted.