World’s governments face $2T debt-servicing burden as borrowing costs hit two-decade highs

The world’s richest governments are now spending more than $2 trillion a year just to keep up with interest payments on their debt. That’s not building roads, funding hospitals, or equipping militaries.

OECD member countries collectively hit that milestone in 2025, with debt-servicing costs consuming approximately 3% of the group’s GDP. Borrowing costs have climbed to their highest levels in nearly two decades, and the political consequences are starting to bite.

The numbers behind the squeeze

The United States sits at the center of this story. US government debt reached a record $40 trillion in 2025. Net interest payments on that debt now exceed what America spends on defense.

The UK isn’t faring much better. Annual debt interest payments clock in at roughly £110 billion, and projections suggest those costs could reach nearly 4% of GDP by 2030-31. That would represent a doubling from pre-pandemic levels. UK Chancellor John Healey noted that debt interest is on track to become the second-largest spending category in Whitehall, trailing only health and surpassing defense.

France presents its own cautionary tale. The country’s annual debt service costs now exceed its defense budget. France has cycled through three prime ministers since its 2024 elections, and its 10-year borrowing costs have widened significantly.

How we got here

The COVID-19 pandemic drove governments across the developed world to borrow massively to fund stimulus programs, healthcare responses, and economic lifelines for shuttered businesses. At the time, interest rates were near zero. Then central banks raised rates to combat inflation, and yields on G7 10-year government bonds have averaged around 4%, the highest levels since 2008. Debt issued at lower pandemic-era rates is now rolling over at these elevated rates, increasing interest-to-GDP ratios across OECD countries.

The trajectory isn’t improving. OECD governments are projected to borrow a record $18 trillion in 2026, which will only deepen the existing hole. Each new issuance locks in today’s elevated rates, meaning the interest burden will continue climbing even if rates eventually come down.

What this means for markets and fiscal policy

The immediate political consequence is stark: governments have less money to spend on things voters actually want. Every dollar, pound, or euro directed toward debt service is a dollar that can’t fund infrastructure projects, military modernization, or social programs.

Bond markets are the mechanism through which this pressure gets transmitted. As investors demand higher yields to compensate for growing fiscal risk, borrowing costs rise further. France’s widening spreads are an early warning sign that sovereign credit perceptions can shift quickly, even for major economies.

When governments absorb $18 trillion in new borrowing in a single year, that’s capital being pulled from other potential investments, and private borrowers face stiffer competition for available funds. Global public debt stands at nearly 94% of world GDP, as reported by the IMF for 2025.

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