Global debt strains on the rise: OECD

“Sovereign and corporate debt levels continue to grow across the world, at a time of increasing borrowing costs and market volatility,” said OECD secretary-general Mathias Cormann in a release. 

This year, debt levels are expected to rise further, the report said, with sovereign bond issuance in OECD countries projected to reach a record US$17 trillion in 2025, up from US$16 trillion last year, and US$14 trillion in 2023. 

As a result, total outstanding sovereign debt is projected to rise to almost US$59 trillion this year, it said.

The growth in emerging markets debt has been particularly strong, the OECD noted, with sovereign borrowing rising by 12% in 2024 to US$3 trillion — which is up from around US$1 trillion in 2007. China accounted for almost half (45%) of total issuance in 2024, it said.

Alongside the increase in sovereign debt issuance, corporate debt issuance rose in 2024 too after a couple of years of lower activity, as companies sought to deleverage amid higher inflation and interest rates in 2022 and 2023. 

The outstanding stock of corporate bond debt edged higher to US$35 trillion in 2024, up 1.4%, the OECD said — noting that the long-term growth in corporate debt, “has largely been driven by increased issuance by non-financial issuers, whose debt has nearly doubled since 2008.” 

Moreover, much of this has not been used to finance productive investment, it said.

“Most corporate debt in recent years has been used to fund financial operations like refinancings and shareholder payouts and there has not been an associated increase in corporate investments to help boost productivity,” the report said.

Looking ahead, higher borrowing costs will increase refinancing risks for both sovereign and corporate issuers, the report warned, with nearly 45% of sovereign debt and 33% of corporate debt set to mature by 2027.

In 2024, borrowing costs rose, the report noted, with governments now spending more on interest payments (3.3% of GDP) than they do on defence, across the OECD. 

“This combination of higher costs and higher debt risks restricting capacity for future borrowing at a time of significant investment needs,” the report said. 

While past borrowing was largely devoted to cushioning the impact of the pandemic, and before that, the financial crisis, “significant new investment will be needed to advance medium- and long-term policy goals,” the OECD said, “including to boost growth and productivity, respond to population ageing and address defence needs.”

“Increasing the efficiency of public spending, prioritizing government borrowing for productivity enhancing public investment that enhances long-term growth and providing firms with incentives to ensure their borrowing enhances their productive capacity, will contribute to improving debt prospects,” Cormann added.