Executive summary

Sovereign borrowing needs and debt levels remain substantially elevated compared to pre-pandemic levels

Fiscal responses to the COVID-19 pandemic drove record levels of debt issuance in the OECD area in 2020, with gross sovereign borrowing requirements peaking at USD 15.4 trillion. Borrowing levels moderated slightly in 2021 and again in 2022, but are forecast to rise by 6% in 2023, to USD 12.9 trillion. This increase is largely confined to the countries most impacted by Russia’s war of aggression against Ukraine.

Similarly, net borrowing needs for the OECD area, which represent additional exposures in the market, continued to decline in 2022 from pandemic-era peaks, from USD 7.4 trillion in 2020 to USD 2.0 trillion in 2022, but are estimated to slightly increase to USD 2.3 trillion in 2023. As a result, the outstanding amount of OECD area central government marketable debt is expected to continue its nominal rise in 2023 to nearly USD 52 trillion, which stands over 30% higher than 2019. This amount has fallen as a percentage of GDP, from a peak of 90% in 2020 to roughly 83% in 2022 and 2023, but total outstanding debt still sits at 10 percentage points of GDP above pre-pandemic levels.

Sovereign borrowers are refinancing significant portion of the debt at higher interest rates, despite the longer average-term-to-maturity of outstanding debt

Over the past year, central bank policy rates have climbed significantly at a steady pace, while asset purchase programmes are being reversed in some cases. Together with heightened geopolitical tensions and global economic uncertainty, investor’s risk appetite has declined, while many markets face heightened volatility and shrinking liquidity. For governments as issuers of debt, these developments translate to higher financing costs and a less predictable funding environment. The cost of new borrowing for OECD sovereigns have more than doubled since 2021, rising from an average of 1.4% in 2021 to 3.3% in 2022. As a result, the median OECD country would see interest payments increase from 0.9% to 1.6% of GDP when refinancing 47% of its debt stock under conditions in 2022 compared to 2021, an increase of 80%.

Average maturities have lengthened considerably in the preceding decade among OECD countries, a trend unchanged in 2022, and many countries issued long maturities at low yields in recent years. Nonetheless, in the OECD as a whole debt portfolios may be exposed to short-term interest rate changes, with 29% of debt due to mature or be refixed under new interest rate conditions in 2023, and 47% by 2025.

Market conditions have deteriorated with tightening liquidity in sovereign bond markets

In addition to rising financing costs, OECD debt management offices have reported a deterioration in market conditions, and liquidity conditions in particular with more than 60% of countries noting a negative change between 2021 and 2022. The leading drivers cited for this decline were macroeconomic uncertainty, monetary policy developments, geopolitical risks, and deterioration of investor sentiment.

The reversal of central bank asset purchase programmes can also place pressure on markets in several ways that may increase costs for market participants and consequently yields, though exact effects depend on the pace and magnitude of the tightening.

In this context, the Outlook reiterates the importance for debt managers to use a variety of tools to support liquidity, including through enhanced market communication, tapping existing securities and buybacks. Chapter 4 is dedicated to reviewing existing liquidity support practices and provides both policy and technical recommendations to sovereign debt management offices when creating or reviewing their buyback and switch programmes, which may help to minimise borrowing costs over time for governments by reducing the liquidity premiums.

Emerging market and developing economies face heightened risks in a period of monetary tightening

The deterioration in global liquidity conditions is affecting Emerging Market and Developing Economy (EMDE) issuers, due to ‘flight to safety’ phenomenon. Debt issuances of EMDE governments in financial markets declined considerably in all regions except the People’s Republic of China (China) in 2022, from USD 4.1 trillion in 2021 to USD 3.8 trillion in 2022. The sharpest decrease occurred in Sub-Saharan Africa, where gross issuances fell 32%, followed by 25% in the Middle East and North Africa, and Latin America and the Caribbean. At the same time, the average term-to-maturity at issuance shortened across all regions, and the share of foreign denominated debt continued to decline, as issuers relied more heavily on shorter-term local currency securities markets amid weakened investor sentiment and rising borrowing costs.

Among EMDEs, low-income countries face greater refinancing risk as 20% of their outstanding debt is due within one year and 42% within three years. Already several countries, including Zambia, Sri Lanka, and Ghana, are under enormous debt stress. Looking forward, it is important that these countries continue to receive financial and technical support from international financial institutions in order to manage their debt in a transparent and prudent way.

Total issuance of sovereign sustainable bonds has fallen from previous highs, but issuance is still strong and the number of sovereign issuers is expanding

The issuance of sovereign sustainable bonds, which are linked to specific or general environmental or social outcomes, has increased dramatically in recent years, reaching record highs in 2021. Issuance decreased by 18% in 2022, primarily due to reduced activity from large issuers. However, the number of sovereigns issuing sustainable bonds continued to expand in 2022, with ten new countries issuing such bonds for the first time, and a further nine more expected in 2023.

This Outlook also traces OECD practices across the sustainable bond issuance process, from establishing frameworks to identifying eligible projects, certifying, issuing, and reporting. Across the process, there are several priorities to lift the efficiency and impacts of sovereign sustainable issuance. At the issuer level, governments need to be able to expand, and more easily identify, eligible expenditures including by using green budgeting practices, and also build their own capacity in developing and issuing these instruments. At the market level, greater standardisation of sustainable products, related taxonomies and impact reporting will help drive further market development and bring down costs for investors and issuers alike.


This work is published under the responsibility of the Secretary-General of the OECD. The opinions expressed and arguments employed herein do not necessarily reflect the official views of the Member countries of the OECD.

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