The government and corporate bonds in circulation exceeded 100 billion dollars in the world last year, said the OECD on Thursday, and the increase in interest costs is leaving borrowers against difficult decisions and forcing them to prioritize productive investments.
Between 2021 and 2024, interest costs as a percentage of production increased from a minimum to a maximum of 20 years.
The expenditure of governments in interest payments reached 3.3% of GDP in their member countries, more than they spend in defense, said the OECD in a report on world debt.
Although the central banks are cutting the interest rates now, the costs of the loans remain much higher than before the increases of types of 2022, so that the debt at low interest remains replaced and it is likely that the costs of the interests continue to increase in the future.
This occurs at a time when governments face large expenses. The German Parliament approved this week a massive plan to boost infrastructure and support a greater impulse of European expenditure in defense. The long -term costs of the ecological transition and the aging of the population loom over the main economies.
“This combination of higher costs and greater debt risk restricting the future indebtedness capacity at a time when investment needs are greater than ever,” said the OECD in its annual debt report.
Despite its strong increase, interest costs are lower than market rates in force in more than half of the OECD countries and almost a third of the public debt of emerging markets, as well as in a little less than two thirds of the high quality corporate debt and almost three quarters of the corporate debt, according to the report.
Almost half of the public debt of OECD countries and emerging markets and around a third of corporate debt will expire in 2027.
Low income and high risk countries face the greatest refinancing problems, with more than half of their debt overcoming in the next three years and more than 20% this year, according to the organization.
As the debt becomes more expensive, governments and companies must ensure that their loans support long -term growth and productivity, said Serdar Celik, head of capital markets and financial institutions of the OECD.
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World Debt exceeds 100 BDD per increase in interest cost: OECD
“If they do this, we are not worried … if they do not do so, if more debt is added, and expensive, without increasing the productive capacity of the economy, then we will see more difficult times.”
However, companies have resorted to greater indebtedness since 2008 for financial purposes, such as refinancing or payments to shareholders, while business investment has declined since then, according to the OECD.
Emerging markets that depend on loans in foreign currency need to develop their local capital markets, the OECD said.
The report revealed that the costs of loans in bonds called in dollars had increased from about 4% in 2020 to more than 6% in 2024, reaching more than 8% in the case of the most risky economies and with the worst rating.
Countries have had difficulty accessing national cash funds due to low savings rates and shallow national markets.
The OECD said that financing the transition to zero net emissions was an “immense challenge.” To the current investment rhythm, emerging markets outside China would face a deficit of 10 billion dollars to meet the objectives of the Paris Climate Agreement by 2050.
If the necessary investments for the transition are financed with public funds, the debt/GDP ratio could increase 25 percentage points in advanced economies and 41 points in China by 2050. If financed with private funds, the debt of energy companies in emerging markets in China would have to quadruple by 2035.
Central banks, by reducing their bond holdings, have been replaced by foreign investors, as well as homes, which now have 34% and 11% of the internal public debt of OECD economies, respectively, compared to 29% and 5% in 2021, according to the agency.
But he warned that these dynamics may not continue.
The increase in geopolitical tension and commercial uncertainties could cause rapid changes in risk aversion, which could disturb international wallet flows, said the OECD.
With Reuters information.
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