OECD debt-servicing costs top $2 trillion a year

The cost of servicing government debt across the world's advanced economies has crossed $2 trillion a year, a threshold that is now redirecting public funds away from defense, infrastructure, and social services in some of the largest economies on the planet.

Combined interest payments among members of the Organisation for Economic Co-operation and Development exceeded $2 trillion in 2025, equivalent to roughly 3% of the group's economic output, according to OECD data and reporting by the Financial Times London Stock Exchange. More than a dozen OECD countries now spend more on debt servicing than on defense, including the United States, the United Kingdom, France, and Italy. Gross borrowing by OECD governments rose to $17 trillion in 2025 and is projected to reach a record $18 trillion this year, with outstanding sovereign debt hitting $61 trillion.firstpost+5

The US Debt Anchor

The United States sits at the center of the problem. National debt crossed $40 trillion on August 18, having surged by a third in less than five years. According to an analysis by Fortune, net interest payments on that debt reached 18.5% of federal revenue in 2025, surpassing a record set in 1991 and equivalent to roughly $1.25 trillion — more than the entire 2026 defense budget. The Congressional Budget Office projects interest costs will double to $2.1 trillion by 2036, at which point gross federal debt is expected to reach $64 trillion.pgpf+4

Treasury Secretary Scott Bessent recently announced a doubling of buyback operations for long-dated bonds, raising maximum operation sizes from about $2 billion to at least $4 billion. The move briefly pushed yields lower, but the relief faded within a day as investors refocused on fiscal fundamentals.jpost+1

A Feedback Loop With No Easy Exit

The average 10-year government bond yield across the Group of Seven has reached about 4%, its highest level since 2008, forcing governments to pay more each time they refinance existing debt or issue new bonds. The International Monetary Fund expects global public debt, which reached 94% of world GDP last year, to hit 100% by the end of the decade.firstpost

The dynamic creates what analysts describe as a feedback loop: larger debt loads prompt investors to demand higher yields, which in turn raise future servicing costs. Michael Peterson, CEO of the Peter G. Peterson Foundation, said the United States "has been running deficits for 26 years, and we have ignored many of the structural challenges that exist in our budget".Yahoo! Finance+2

Ripple Effects Beyond Washington

The strain is not confined to the United States. The UK is paying roughly £110 billion a year in interest on its debt, with costs projected to approach 4% of GDP by 2030-31. France faces widening spreads over German borrowing costs, compounding its deficit-reduction challenge. Across the OECD, about 80% of gross borrowing in 2025 went simply to refinance previously accumulated debt rather than fund new spending.aa+2

Without stronger economic growth to boost revenues, governments face an increasingly stark set of choices: raise taxes, cut services, or watch debt costs consume ever-larger shares of their budgets.firstpost