By Nermeen Nabil Khear 
Global debt has passed $100 trillion, and governments and corporations are drowning in rising interest costs. The Organisation for Economic Co-operation and Development (OECD) confirmed the staggering number on Thursday, warning that borrowing is now more expensive than it has been in two decades. Interest payments have climbed to 3.3% of GDP across OECD member states—higher than what these countries spend on defense.
Governments are stuck between a rock and a hard place. Cheap debt from the pre-2022 era is vanishing, replaced with expensive loans that strain national budgets. Meanwhile, spending needs are piling up.
Germany’s parliament just signed off on a major infrastructure plan while also backing a European-wide push for higher military spending. The cost of green energy transitions and aging populations is adding even more financial pressure.
Massive refinancing ahead as governments struggle with repayments
Interest rates might be coming down, but debt remains costly. The OECD made it clear that borrowing will keep getting more expensive because older, low-rate loans are being replaced by higher-rate ones. “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 report stated.
Nearly half of all OECD and emerging market government debt—along with about one-third of corporate bonds—will mature by 2027. That means trillions will need to be refinanced in the next few years, likely at much higher rates. For low-income economies, the problem is even worse. More than half of their government debt is coming due within the next three years, and over 20% of it must be repaid this year. These countries are at high risk of default if they fail to secure refinancing.
Serdar Celik, the OECD’s head of capital markets and financial institutions, emphasized the importance of responsible borrowing. “If they do it this way, we are not worried… If they don’t do it this way, if it adds additional, expensive debt, without increasing the productive capacity of the economy, then we will see more difficult times.”
Corporations aren’t doing much better. Since 2008, companies have ramped up borrowing, but instead of using the money to invest in growth, many have funneled it into refinancing or shareholder payouts. That trend is continuing, and the OECD made it clear that this kind of financial strategy is unsustainable. For emerging markets, the solution might lie in building stronger local capital markets to avoid relying so heavily on foreign-currency debt.
Geopolitical risks and climate spending deepen the crisis
Dollar-denominated borrowing has become more expensive, jumping from 4% in 2020 to over 6% in 2024. For high-risk, junk-rated economies, the rate has soared past 8%. Many of these economies struggle to tap into domestic savings, which leaves them exposed to external shocks.
The OECD also flagged the net-zero emissions transition as a major financial challenge. At current investment levels, emerging markets outside China will face a $10 trillion shortfall by 2050. If governments try to finance these green initiatives on their own, it could push their debt-to-GDP ratios up by 25 percentage points in advanced economies and 41 points in China. If private investors take on the burden, corporate debt in energy markets outside China would need to quadruple by 2035.
Central banks are pulling out of the bond market. Foreign investors and households have picked up the slack, increasing their holdings of OECD government debt to 34% and 11%, respectively. Back in 2021, those numbers were just 29% and 5%. But the OECD warned that this might not last.
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This articles is written by : Nermeen Nabil Khear Abdelmalak
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