Global Debt Exceeds $100 Trillion amid Interest Rate Crisis

The Organization for Economic Co-operation and Development (OECD) announced on Thursday that the total outstanding government and corporate bonds globally will exceed $100 trillion in 2024, as rising interest costs force borrowers to make difficult financial decisions and divert investments toward productive sectors.

Interest costs as a percentage of GDP rose between 2021 and 2024 to their highest levels in the past 20 years, according to the organization's annual Global Debt Report.

The data revealed that government interest payments reached 3.3% of GDP in OECD countries, a rate that exceeds government spending on defense.

Although central banks have begun cutting interest rates, borrowing costs remain high compared to the period before the large rate hikes in 2022, putting upward pressure on interest costs in the coming years.

These developments come at a time when governments are facing huge spending bills. This week, the German parliament approved a massive funding plan for European infrastructure and defense support.

Major economic challenges also loom, such as financing the green transition and the impact of aging populations on economies.

The report shows that half of all government debt in OECD and emerging markets, as well as a third of corporate debt, will mature by 2027.

This poses a significant challenge for low-income and high-risk countries, with more than half of their debt due in the next three years, and more than 20% in 2024.

With debt costs rising, the OECD emphasized that governments and companies must ensure that borrowing supports long-term growth and productivity.

“If debt is directed towards productive investments, we won’t be worried,” said Serdar Celik, head of capital markets and financial institutions at the OECD. “But if new expensive debt is added without increasing the economy’s productive capacity, we will face more difficult times.”

Financing the transition to carbon neutrality is a huge challenge. The report shows that emerging markets (excluding China) will face a $10 trillion financing gap to achieve the Paris Agreement goals by 2050.

If these investments are fully financed through government spending, the debt-to-GDP ratio could rise by 25 percentage points in advanced economies and 41 percentage points in China by 2050.

If financed through the private sector, energy companies' debt in emerging markets (excluding China) would need to quadruple by 2035 to cover the debt.

Meanwhile, the report indicated that central banks, previously the main buyers of government bonds, are reducing their holdings, while the share of foreign investors and households in holdings of domestic government bonds in OECD economies has increased, reaching 34% and 11%, respectively, in 2024, compared to 29% and 5% in 2021.

However, the organization warned that these trends may not continue, as geopolitical tensions and trade uncertainty could lead to sudden shifts in investor sentiment and financial risks, potentially hindering global investment flows.