- Debt financing costs have jumped to the highest level since 2007 among OECD governments.
- Interest payment as a share of GDP outpaced defense and safety services.
- The US accounted for over two-thirds of OECD gross borrowing in 2024.
Interest payments have taken the biggest bite out of government budgets since at least 2007, as debt financing costs outpace spending on defense, public safety, and housing in many countries.
The Organization for Economic Cooperation and Development found that debt servicing costs accounted for 3.3% of GDP across 38 member economies, a sharp increase from 2.4% in 2021.
“Bond yields in several key sovereign markets rose despite policy rates falling, while both sovereign and corporate indebtedness increased. This combination of higher costs and higher debt risks restricting capacity for future borrowing at a time when investment needs are greater than ever,” the OECD said in Thursday’s Global Debt Report.
OECD Global Debt Report 2025
The data highlights a trend that has put bond traders on edge for some time; rising debt levels have sparked warnings of unsustainable interest costs that could spiral into a crisis in coming decades, analysts have said.
Borrowing costs have spiked since the pandemic, as nations boosted interest rates to ward off post-pandemic inflation.
The issue is especially relevant to the US, which is among the top five OECD debt issuers and which represents more than two-thirds of OECD gross borrowing. In 2024, interest payments accounted for 4.7% of US GDP.
Top market commentators, such as Ray Dalio, have been warning against the ballooning debt for years, but until recently, the alarm bells have rarely translated into policy action.
Now, government interest payments have been cited as a reason Elon Musk, who heads the Department of Government Efficiency, is slashing federal departments and programs.
“The cost of our debt has gotten so high that just the interest payments on the debt exceed the entire military budget, and it was just growing out of control,” he told Fox.
It remains to be seen whether DOGE efforts will do much to reduce the debt, and whether any fiscal impact they may can offset the Trump administration’s planned tax cuts.
But whatever happens, global bond traders are watching.
Government debt buyers have already ditched bonds once this year before, causing yields to spike worldwide in protest of unsustainable fiscal policy. Yields rise when bond prices fall, indicating that sellers have lost appetite for the market.
This is a risk if governments don’t clamp down on debt levels, but so far, there’s little sign of change.
According to OECD, debt issuance among member countries is expected to reach $17 trillion this year, up from $16 trillion in 2024.
“With increased treasury bill issuance in recent years, refinancing needs are expected to hit USD 13 trillion in 2025, nearly 80% of gross borrowing,” the report said. “Meanwhile, net borrowing in 2025 is projected to remain around 2024 levels, at around USD 3 trillion, double the pre-pandemic average.”
