Global debt at $100tr as interest costs soar

The outstanding government and corporate bonds globally exceeded $100 trillion last year, the Organisation for Economic Cooperation and Development (OECD) said on Thursday, with rising interest costs leaving borrowers facing tough choices and needing to prioritise productive investments.

Between 2021 and 2024, interest costs as a share of output rose from the lowest to the highest in the last 20 years. Spending by governments on interest payments reached 3.3% of gross domestic product (GDP) in its member countries, higher than what they spend on defence, the OECD said in a global debt report.

 

While central banks are cutting interest rates now, borrowing costs remain much higher than before 2022’s rate hikes, so low-rate debt is continuing to be replaced and interest costs are likely to continue rising ahead.

This comes at a time when governments face big spending bills. Germany’s parliament approved a massive plan to boost infrastructure and support a broader European defence spending push this week. Longstanding costs from the green transition to ageing populations loom for major economies.

“This combination of higher costs and higher debt risks are restricting capacity for future borrowing at a time when investment needs are greater than ever,” the OECD said in the annual debt report.

Despite their sharp rise, interest costs are still below prevailing market rates for over half of OECD countries and nearly a third of emerging market government debt as well as for just under two-thirds of high-grade corporate debt and for nearly three-quarters of junk corporate debt, the report said.