Government Debt Costs In Rich Nations At Highest Levels Since 2007

The cost of servicing government debt in the wealthiest countries has reached its highest point since 2007, surpassing spending on defence, police, and housing. According to a report by the Organisation for Economic Co-operation and Development (OECD), debt servicing costs across its 38 member states rose to 3.3% of national income in 2024, up from 2.4% in 2021. The increase has placed pressure on governments already grappling with spending demands from the green energy transition, heightened defence budgets, and ageing populations.

The report highlights that OECD nations collectively raised $15.7 trillion (£12.1 trillion) in new borrowing in 2024. After accounting for repayments, net borrowing amounted to $3 trillion, pushing total OECD government debt to $55 trillion. Across the globe, sovereign debt hit $65.2 trillion, while corporate borrowing grew to $35 trillion, bringing the total global debt beyond the $100 trillion mark. Much of the corporate borrowing has been used for share buybacks and dividend distributions rather than productive investment.

The five largest borrowers – the United States, Japan, France, Italy, and the United Kingdom – accounted for over 85% of gross OECD borrowing last year. Notably, the US was responsible for more than two-thirds of total OECD borrowing. This growing reliance on debt coincides with ongoing concerns about the sustainability of repayment schedules as interest rates remain elevated.

Defence spending, at 2.2% of GDP among OECD members, was notably lower than the cost of servicing public debt, which stood at 3.3%. By comparison, spending on housing and police was 0.7% and 1.7%, respectively, underscoring how debt costs have eclipsed other major public expenditures. The OECD Secretary-General, Mathias Cormann, warned that high debt levels and rising interest rates could restrict governments’ capacity for future borrowing at a time when significant public investment is needed.

Over half of the government debt held by OECD and emerging markets will mature by 2027, with a large proportion requiring refinancing at higher interest rates. Among low-income nations, the refinancing risks are particularly acute; more than half of their debt will mature over the next three years, with 20% of these obligations due in 2025. The OECD emphasised the importance of focusing borrowing efforts on investments that support long-term economic productivity rather than adding high-cost debt without returns.

Given the long-term challenges posed by ageing populations and geopolitical tensions, including higher defence spending, governments must prioritise public investments that are both sustainable and growth-focused. Increasing productivity-enhancing expenditures will be critical in ensuring that future borrowing remains viable in a tightening fiscal environment.

Despite the growing debt burden, the OECD expects global debt levels to rise further in 2025, with the debt-to-GDP ratio for its member countries forecast to reach 85%. This marks a significant increase compared to 2019 and is almost double the levels seen before the 2007 financial crisis.