Sovereign Borrowing Expected a Rise in 2023

Sovereign Borrowing Expected a Rise in 2023

Sovereign borrowing needs are expected to increase in 2023 against the backdrop of the financial and economic spill overs of Russia’s war of aggression against Ukraine, according to a new OECD report.

In the Sovereign Borrowing Outlook 2023, OECD estimates that gross borrowing requirements would increase by around six per cent in 2023, to total USD 12.9 trillion, up from USD 12.2 trillion in 2022.

Net borrowing needs are also expected to rise in 2023 to USD 10.6 trillion, from USD 10.2 trillion in 2022.


The OECD said that outstanding central government debt declined as a share of GDP, from a peak of 88% in 2020 to 83% in 2022. The organisation projected it to remain stable in 2023, though still about 10 percentage points above pre-pandemic levels.

Almost half of OECD marketable debt – some USD 23 trillion – will fall due over the next three years. Borrowing costs have more than doubled for OECD sovereigns since 2021, with the average yield of sovereign bonds at issuance rising from 1.4% in 2021 to 3.3% in 2022, and look set to rise further still in the near term. As a result, countries face elevated refinancing risk, and many governments will spend a higher proportion of their budgets servicing debt and may face greater fiscal constraints in the years ahead.

“2023 marks the end of a long period of favourable funding conditions for sovereign issuers as they adjust to new realities and a rapidly evolving market environment, compounded by the financial and economic spill overs of Russia’s war of aggression against Ukraine,” OECD Secretary-General Mathias Cormann said. “These latest developments underscore the importance of credible institutional frameworks for debt management, with the capacity for public debt managers to adapt and respond to shifting market conditions”.


Sovereign issuers face further challenges beyond higher rates, the OECD said in an official statement. Central bank demand for bonds has largely evaporated, leaving the private sector to absorb high volumes of new issuance and refinancing. Liquidity in markets has also deteriorated, potentially increasing borrowing costs further and giving less flexibility to debt managers to adapt to shifting borrowing needs. Emerging market and developing economies can face heightened risks in this market context, as foreign investors rebalance portfolios in ‘flight to safety’ responses.

The Outlook also tracks the contribution of sovereign issuers in catalysing sustainable investment. The total stock of sovereign sustainable bonds now exceeds USD 325 billion, 75% of which are focused on climate and environmental projects. While the total value of sustainable bond issuance declined between 2021 and 2022, the number of countries issuing such instruments is expanding, with ten new countries in 2022 and a further five in the first four months of 2023. Investor demand appears strong, and this momentum is expected to continue in the coming years.


Financial and economic spill overs of Russia’s war against Ukraine. This increased geopolitical uncertainty and disrupted trade and energy flows.

The need to cushion households and businesses from rising prices, especially for energy, food and other essential goods. This eroded purchasing power and threatened social stability.

The stagnant growth and budgetary pressures in some regions, such as developed Europe and Latin America. This reduced tax revenues and increased spending needs.


Increase sovereign risk, which means a government will default on its debt obligations or restructure them unfavourably for creditors. This can lead to higher borrowing costs, lower credit ratings, and reduced market access for sovereign issuers.

Hit banking systems and the real economy that produces goods, services, and jobs. Banks may hold large amounts of sovereign debt on their balance sheets. Sovereign defaults or restructurings can also trigger financial contagion and spill overs across countries and regions. 

Refinancing risk, which is the risk that a government will not be able to roll over its maturing debt or meet its interest payments. This risk is heightened by the large amount of debt that will fall due over the next three years, estimated at 40% of outstanding marketable debt for OECD countries. Refinancing risk can also be exacerbated by deteriorating market liquidity and reduced central bank demand for bonds.


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