OECD: Interest Payments Surpass Defense and Housing Aid in Rich Nations

Government borrowing costs are surging, with interest payments consuming a growing share of public resources, surpassing defense and housing aid expenditures, according to the OECD’s latest Global Debt Report.

Debt Servicing Costs at Record Highs

The report, released Thursday, reveals that debt servicing costs as a percentage of GDP for 38 OECD nations rose to 3.3% in 2024, up from 2.4% in 2021. This surpasses the 2.4% of GDP spent on defense in 2023, as estimated by the World Bank.

Key figures for interest costs as a percentage of GDP:

• United States: 4.7%
• United Kingdom: 2.9%
• Germany: 1.0%

Soaring Borrowing Costs and Rising Debt Levels

As bond investors brace for prolonged inflation and increased government borrowing, the OECD warns that rising issuance and mounting debt could constrain future borrowing capacity just as investment needs—especially in defense and fiscal stimulus—intensify.

• Public borrowing in high-income OECD countries is projected to hit $17 trillion in 2025, up from $16 trillion in 2024 and $14 trillion in 2023.
• This debt surge is raising sustainability concerns, particularly in countries like the US, UK, and France.

Debt Needs to Fund Growth, Not Just Crisis Recovery

Carmine Di Noia, the OECD’s Director of Financial and Corporate Affairs, argued that while the debt burden is not inherently negative, much of the borrowing over the past two decades has been used for crisis recovery, including the 2008 financial crisis and the COVID-19 pandemic.

To stabilize and eventually reduce debt-to-GDP ratios, Di Noia stressed that borrowing should be directed towards growth-driving investments, such as infrastructure and climate projects.

Challenges Ahead: Rising Bond Yields & Changing Debt Ownership

The report highlights that 45% of OECD sovereign debt will mature by 2027, making refinancing a growing concern amid higher bond yields. Favorable borrowing conditions are deteriorating, pushing up costs.

Additionally, the end of central bank bond-buying programs (QE) has reduced their government bond holdings by $3 trillion since 2021, with another $1 trillion decline expected this year.

With central banks retreating, global funds—more sensitive to price fluctuations—are filling the gap, increasing market volatility and geopolitical uncertainty in debt management, the OECD warned.