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