Outstanding government and corporate bonds worldwide exceeded $100 trillion in 2023, reported the Organisation for Economic Co-operation and Development (OECD).

The rising cost of borrowing is forcing governments and businesses to reassess investment priorities.

Despite central banks beginning to lower interest rates, borrowing costs remain significantly higher than pre-2022 levels. As older, low-interest debt is replaced, interest expenses are expected to rise further, complicating financial planning for both the public and private sectors.

Governments face mounting spending pressures, including infrastructure projects, defence commitments, and long-term obligations such as the green transition and ageing populations. The OECD warned in its annual debt report that this could limit their ability to take on new debt.

Interest costs as a share of economic output have surged to their highest level in two decades. However, many governments and companies are still paying interest below current market rates.

Around half of OECD and emerging market government debt, and nearly a third of corporate debt, will mature by 2027, creating refinancing risks.

The situation is more acute for low-income, high-risk countries, with over half of their debt maturing in the next three years and more than 20% due this year. The OECD urged policymakers to ensure borrowing supports long-term productivity and growth.

Since 2008, companies have increasingly used debt for financial activities like shareholder payouts rather than investment. Meanwhile, emerging markets reliant on foreign currency debt face rising borrowing costs and must strengthen local capital markets to reduce vulnerability.