In the last fifteen years, sub-national (state and local) governments in Mexico have increased their expenditure and debt. Specifically, since the end of 2008, indebtedness of Mexican's states and their municipalities has grown faster, relative to previous periods. In particular, the most important source of finance is credit supplied by commercial banks. This paper explores the following questions: which are the determining factors of this recent fast indebtedness? what are the conditions of the credit granted by the commercial banks to these agents? Taking into account the evidence provided by other countries' experience (e.g. Brazilian states in the nineties), we further analyze whether the aforementioned situation endangers either the long run viability of public finance or the macroeconomic and financial system stability.

For these reasons, we also highlight the need to create and track indicators or statistics capturing the evolution of the sub-national public finances in a timely and standardized manner in order to identify high levels of default risk in particular states or municipalities and act in consequence. We further stress the importance of including data regarding sub national fiscal deficit and debt in the governmental financial position reported by the Ministry of Finance and argue that it should be taken into account when forecasting macroeconomic indicators (for instance, inflation, interest rates, consumption, etc.).

Keywords: indebtedness; sub-national governments

Biography: He obtained his Bachelor in economics and Master in political economy at the Universidad Nacional Autonόma de México; he obtained a Master degree in applied economics in the Universidad Autόnoma de Barcelona (Spain) and actually is Ph. D. candidate in applied economics for the Universidad Autόnoma de Barcelona.

He has worked at the Banco de Mexico since 1998 in different positions. Currently is chief of the financial analysis office at the Macroeconomic Analysis Division.