Michoacan under pressure from interest rates

“Given the inability to finance investment projects with long-term loans, Michoacan may be forced to allocate a larger portion of its already limited fiscal space to public works,” warned Moody’s Local.

The situation will place additional pressure on the state’s liquidity and lead it to rely more heavily on short-term loans, which carry higher interest rates.

A reform recently came into effect in the state that prohibits the issuance of long-term debt whose repayments extend beyond the term of the current executive administration.

Currently, Michoacan has a moderate debt level, equivalent to 52% of operating revenue. Although this is above the 39% average observed among states rated by Moody’s Local Mexico in 2025, it has maintained a downward trend over the past five years.

“Furthermore, the state makes little use of long-term debt, as reflected in the fact that 80% of financing revenue over the past five years has come from debt maturing in less than one year,” added the Moody’s Local study.

It also noted that Michoacan has generated low and volatile operating and financial results: during the 2021–2025 period, the state reported average operating surpluses of 0.1% of operating revenue, equivalent to an average of US$8.3 million annually.

Moody’s noted that the state has maintained moderate capital spending, equivalent to 4.3% of its total spending on average over the past five fiscal years.