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According to OECD figures, interest payments have swallowed the biggest portion of the country’s abundant economic output since at least 2007, surpassing defence and housing spending.
Debt repayment costs as a percentage of GDP in 38 OECD countries rose sharply in 2024 from 2.4% in 2021, according to the group’s global debt report on Thursday. In contrast, the World Bank estimates that the same group spent 2.4% of its GDP on the military in 2023.
Interest costs were 4.7% of GDP in the US, 2.9% in the UK and 1% in Germany.
As many governments expand their spending on defense and other fiscal stimulus, borrowing costs are rising as bond investors support sustained inflation and increased issuance in large economies.
The OECD warned that the double hit of rising yields and growing debt is at risk that “limits our ability to borrow in the future at a time when investment needs are greater than ever.” It highlighted the “difficult outlook” of the global debt market.
According to an OECD report, borrowing countries across high-income groups is expected to reach a new record of 17tn in 2025, compared to 16tn in 2024 and 14tn and 14tn in 2023. This wave of debt issuance has fueled concerns about sustainability in countries such as the UK, France and even the US.
The massive debt burden itself is “not negative,” said Carmine di Noia, director of financial and corporate affairs at the OECD.
However, much of the borrowing over the past 20 years has been spent recovering from the 2008 financial crisis and the Covid-19 pandemic. He argues that “now we need to move from recovery to investment,” including spending on infrastructure and climate projects.
“Borrowing must increase growth,” so the government will ultimately be able to “actually reduce the debt-to-GDP ratio.”
However, this picture is complicated by higher bond yields, making it more expensive to refinance existing debts.
The report said almost 45% of OECD sovereign debt will mature by 2027. “There were a lot of publications under favorable terms,” Di Noia said, adding that these conditions have deteriorated.
According to the OECD, in addition to expensive debt guarantee conditions, the profile of sovereign debt holders will change. Central bank government bond holdings are expected to fall by $30 from their peak in 2021, falling to another 1tn this year as policymakers rewind their emergency bond buying program.
This means that private investors who said Di Noia is “more price sensitive” make up for the difference. Sensitivity opens publishers to more volatility and exposes them to “increasing geopolitical and macroeconomic uncertainty,” he added.
