OECD Countries' Total Government Interest Expenditure to Increase by $180 Billion Year-on-Year in 2025, Reaching a Record High of $2.24 Trillion
OECD government interest expenditure rises to $2.24 trillion
OECD countries' total government interest expenditure is expected to increase by $180 billion year-on-year in 2025, reaching a record high of $2.24 trillion, marking the fourth consecutive year of increase, with a cumulative excess payment of $960 billion over four years.
The United States contributes about 65%, with interest expenditure at $1.45 trillion; the European Union accounts for about 18%, approximately $400 billion. In terms of global GDP, this total interest is roughly equivalent to 3.2%, the second highest in at least 20 years. During the same period, the U.S. federal debt balance has risen to about $40 trillion, with the average yield on G7 ten-year government bonds at about 4%, the highest since 2008, as old debts are rolled over at higher coupon rates.
The OECD's "Global Debt Report 2026" provides figures on issuance and interest bills: member countries' total sovereign borrowing in 2025 is about $17 trillion, with an expected additional borrowing of about $18 trillion in 2026, both record highs; of this, about 80%, or approximately $14.5 trillion, is used to repay maturing old debts, with a net issuance of about $4 trillion. The OECD sovereign debt balance is expected to rise to about $61 trillion in 2025, with a debt-to-GDP ratio of about 83%, and is projected to reach 85% in 2026, the highest since 2021. The total issuance in the global bond market is expected to be about $29 trillion in 2026, with sovereign and corporate issuers competing for buyers.
Interest expenditure in countries like the U.S., U.K., and France has already surpassed defense budgets; overall OECD interest as a percentage of GDP is expected to reach 3.3% in 2024, exceeding the sum of several functional expenditures such as defense and housing. Low-interest bonds from the pandemic are being replaced by higher-yielding ones, with the lagging effects of refinancing costs leading to an increasing share of interest in fiscal revenue, constraining infrastructure, defense, and social security spending.
According to IMF standards, global public debt is about 94% of global GDP, and is expected to approach 100% by the end of this decade. The U.S. general government deficit in 2025 is still about 6.8% of GDP, with interest rising to 4.3% of GDP, and the mid-term path pointing towards nearly 5% by 2031. The buyer structure is also changing: after central banks reduce their balance sheets, funds that are more sensitive to prices, such as mutual funds and hedge funds, are taking on a larger share, making the issuance window more sensitive to sentiment shocks.
In market mechanisms, the seller is the OECD treasury that must roll over maturing debts and cover deficits, while buyers are shifting from central banks to mutual funds, insurance companies, hedge funds, and foreign reserves; this is driven by refinancing of existing stock, not one-time stimulus. Funds flow from taxes and new government bonds to creditor coupons, and then reallocate within the global bond market. Beneficiaries are creditors holding high-coupon new bonds; those under pressure are the fiscal authorities that must make trade-offs between interest, defense, and welfare, as well as corporate issuers competing for $19 trillion to $29 trillion in bond supply from sovereign issuers.
Source: Public Information
ABAB AI Insight
Record interest expenditures are not a sudden fiscal accident in 2025. In the 2010s, countries used near-zero policy rates and quantitative easing to compress the average coupon rates of outstanding government bonds to post-war lows, and during the pandemic, they raised debt/GDP ratios by more than ten points; since interest rate hikes began in 2022, maturing old debts have been replaced by new issuance rates around 4%, creating a snowball effect from the existing stock. The U.S. has taken the same path: after the financial crisis, it extended duration and compressed coupon rates, and then expanded both the deficit and the Federal Reserve's balance sheet in 2020-2021, leading to a current federal debt of about $40 trillion, with interest exceeding defense spending. The U.K. and France have applied the same logic on a narrower tax base, resulting in interest expenditures surpassing defense.
The capital path involves the treasury first paying creditors with current tax revenues and new government bonds, and then allocating the remaining budget to defense, healthcare, and investment. Of the approximately $18 trillion total borrowing by the OECD in 2026, nearly 80% is just borrowing to repay old debts, with only about $4 trillion being truly new borrowing that must compete with about $11 trillion in corporate debt and the massive capital expenditures of large tech companies in the coming years for the same long-duration buyers. Central banks are no longer marginal buyers; hedge funds and open-end bond funds have become price discoverers, meaning that increased supply will directly raise term premiums rather than being absorbed by balance sheets. Money flows from taxpayers to creditors, and then from creditors to the private sector that requires higher yields to increase their positions.
Similar structural phases have occurred twice before: in the early 1980s after Volcker's rate hikes, U.S. interest expenditures approached defense spending as a share of the budget; during the 2010-2012 Eurozone crisis, refinancing rates in Italy and Spain rose ahead of fundamental deterioration. The current situation is more akin to the former global version: it is not a single country being kicked out of the market, but the entire OECD simultaneously replacing low-interest stock with high-interest stock. In terms of industry position, sovereign debt is still in the "expanding issuance, not yet out of control and refusing to buy" phase, but has shifted from central bank suppression of volatility to private sector pricing volatility.
Structural judgments belong to the reconstruction of fiscal constraints after regulatory and pricing power: when interest becomes the second largest "expenditure department", the government loses discretionary power, not abstract credibility. The mechanism is that duration mismatches are revealed by interest rate cycles—over the past decade, low coupon long-term bonds were issued, and now maturing bonds must be cleared at market rates; those with earlier maturity walls and thinner domestic buyers will be the first to rewrite tax rates or expenditure structures. A debt crisis does not necessarily manifest first as default, but as budgets being locked by coupon payments.
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