Government Debt Interest Costs Reach Highest Level Since 2007

Interest payments on government debt have reached their highest level since 2007, consuming a larger portion of rich nations' GDP than defense or housing expenditures, according to the OECD. Debt service costs for the 38 OECD countries rose to 3.3% of GDP in 2024, up from 2.4% in 2021.

This surpasses the 2.4% of GDP these countries spent on military in 2023. The OECD highlighted the risk of rising yields and growing debt restricting future borrowing capacity, with sovereign borrowing among high-income countries expected to hit a record $17 trillion in 2025. Despite the large debt burden, Carmine Di Noia of the OECD emphasized the need to shift from recovery to investment, such as infrastructure and climate projects, to increase growth and stabilize the debt-to-GDP ratio.

However, refinancing existing debt has become more expensive due to higher bond yields and a changing profile of sovereign bond holders, increasing exposure to volatility and uncertainty.