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This report is currently under revision following to reflect changes due to the coronavirus (COVID-19) pandemic. A revised version is scheduled for publication in June 2020.
Sovereign borrowing outlook for OECD countries, 2007 to 2020
20/02/2020 - The combined gross borrowings of OECD governments from the markets, which peaked at USD 10.9 trillion in 2010 in the wake of the global financial crisis, are set to reach USD 11.4 trillion in 2019. The report forecasts a continuation of this upward movement in 2020, albeit at a slower pace. The bulk of gross borrowings, projected to reach USD 11.8 trillion in 2020, are to refinance existing debt. As a percentage of GDP, the gross borrowing needs of G7 countries are expected to continue increasing in 2020, while those of the other country groupings are expected to continue a slow decline.
Outstanding central government debt for the OECD area as a whole, which grew by an average of 10% per year between 2008 and 2013, has grown by 4% per year since 2014. At the end of 2019, central government gross marketable debt is estimated to account for 72.6% of GDP. It is projected to be broadly unchanged in 2020, largely due to favourable interest rate-growth differentials in most OECD countries.
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Evolution of the average term to maturity of debt in OECD countries from 2007 to 2019
The total gross borrowing of OECD governments from the markets is estimated to have risen from USD 10.6 trillion in 2018 to USD 11.4 trillion in 2019, and is projected to increase slightly to USD 11.8 trillion in 2020. While heavy debt repayments account for the bulk of gross issuance in 2020, the new debt issuance of OECD governments to the markets is projected to amount USD 2 trillion.
The accumulation of debt continues, albeit at a slower pace in recent years in comparison to the period during the global financial crisis and its aftermath. Outstanding central government debt for the OECD area as a whole grew by around 10% per year on average between 2008 and 2013, and has increased by 4% per year since 2014. The central government marketable debt-to-GDP ratio for the OECD area is projected to be 72.8% in 2020, broadly unchanged from 2019, largely due to favourable interest rate-growth differentials in most OECD countries.
Interest rates on government bonds declined to new record lows, and yield curves in many countries have flattened over the past year. This reflects a confluence of factors including stronger demand for safe assets and more accommodative monetary policy in most major advanced and emerging market economies. These conditions facilitate the servicing of debt and lengthening of the average maturities, hence encouraging debt-financed public investments.
The maturity composition of issuance across OECD countries remained tilted towards long-term fixed-rate securities, though with a slight increase in the use of T-Bills. The weighted average term-to-maturity of outstanding marketable debt has increased by almost two years since 2007, reaching eight years in 2019. The lengthened maturities reduce the near-term exposure to refinancing risk and the sensitivity of total debt servicing costs to changes in market interest rates.
In recent years, several sovereign debt management offices in the euro area and Japan have issued negative-yielding debt and received premiums from these issues. As of end 2019, the pool of total negative bond issuance reached USD 3.6 trillion with maturities up to 20-years. This affected investor base due to lower demand from yield-sensitive investors such as banks.
Total sovereign issuance of green bonds in the OECD area has exceeded EUR 40 billion, and amounts to 0.1% of total government marketable debt in the OECD area in 2019. The green bond market is expected to grow further as some countries, including Germany and Sweden, have expressed their readiness to issue green bonds in 2020. However, this market is still quite small compared to traditional bond market, and its long-term prospect will depend to a large extent on the size of green eligible projects in government budgets.
OECD governments will need to refinance around 20% of their outstanding marketable debt in 2020. Sovereign issuers, in particular in the countries where heavy debt repayments coincide with high new borrowing needs, should remain vigilant against the global risks and maintain flexibility in funding programmes as well as transparency and predictability.
About the Sovereign Borrowing Outlook
This annual report examines net and gross sovereign borrowing in OECD countries from 2007 to 2020. It first looks at net and gross borrowing needs of OECD governments in the context of fiscal developments. It then considers recent trends in central government marketable debt in the OECD area and central government debt ratios for groups of selected OECD countries. Finally, the report examines funding strategies and growing issuance of debt with 30 or more years of maturities.