The next debt crisis may not begin with a government refusing to pay. It may begin when governments, companies and investors all try to refinance record amounts of debt at the same time.
Combined borrowing by governments and companies, according to the OECD Global Debt Report.
Global debt markets entered 2026 in an unusual condition. Borrowing is at a record level, yet bond markets are still functioning. Credit spreads remain relatively low, government auctions continue to attract buyers and most large borrowers retain access to financing.
The apparent calm hides a structural change. A growing share of new borrowing is not financing new roads, schools, energy systems or productive investment. It is being used to replace old debt that was issued when interest rates were lower.
That process is called refinancing. A borrower repays a maturing bond by issuing another bond. When the replacement debt carries a much higher interest rate, the amount owed may remain similar while the annual cost increases.
This is why the debt problem of 2026 is not only about how much governments and companies owe. It is about how quickly the cost of the existing debt stock is being reset.
The global debt dashboard.
Expected combined borrowing by sovereign and corporate issuers.
Combined sovereign and corporate bond market covered by the OECD report.
Approximate share of world GDP reached during 2025.
IMF projection for global public debt relative to world GDP.
How the refinancing machine works.
Old debt matures
A government or company must repay bonds issued several years earlier.
New bonds are sold
The borrower returns to the market rather than repaying the full amount from current revenue.
The interest rate resets
Debt issued during the low-rate era is replaced with more expensive financing.
Interest absorbs the budget
A larger share of tax revenue or corporate cash flow is used for debt service.
Policy options narrow
Less money remains for investment, services, wages, dividends or emergency support.
Refinancing is normal. Governments rarely eliminate their entire debt stock, and healthy companies routinely replace maturing bonds.
The danger appears when several conditions combine: large refinancing volumes, elevated interest rates, weak economic growth, persistent budget deficits and investors demanding additional compensation for long-term risk.
The refinancing wall is still rising.
OECD sovereign refinancing requirements
The figures below represent approximate annual refinancing needs across OECD central governments.
Large volumes of pandemic-era and earlier debt begin moving toward maturity.
Refinancing reaches a new nominal record.
Requirements rise again while long-term yields remain elevated.
Approximately 78% of OECD government borrowing in 2026 is expected to refinance existing debt. This distinction matters. Headlines about record issuance can create the impression that governments are financing an equally large expansion of new spending.
In reality, most of the money will pass through the government’s accounts and return to investors holding maturing securities.
Net borrowing—the amount that adds to the debt stock after refinancing—is projected to remain much smaller, although still historically high at close to $4 trillion across OECD governments.
Why the old debt is becoming more expensive.
| Debt condition | Low-rate era | 2026 refinancing environment | Economic consequence |
|---|---|---|---|
| Interest rates | Historically low or near zero in several economies | Higher nominal and real borrowing costs | Interest expense rises gradually as bonds mature |
| Central bank demand | Large bond purchases through quantitative easing | Smaller balance sheets and quantitative tightening | Private investors must absorb more issuance |
| Investor preference | Strong demand for long-duration government bonds | Greater caution toward long maturities | Governments issue more short-term debt |
| Inflation effect | Unexpected inflation reduced debt ratios | Falling inflation provides less automatic relief | Debt-to-GDP ratios become harder to stabilize |
| Fiscal pressure | Lower defence and emergency spending | Higher demands for defence, energy, welfare and industry | Deficits remain large even outside recessions |
The OECD estimates that one-third of outstanding fixed-rate sovereign debt will mature between 2026 and 2028. Since 2023, ten-year market yields have generally been around two percentage points higher than the yields attached to the bonds reaching maturity.
The full effect of higher rates therefore does not reach government budgets immediately. It arrives gradually as each part of the debt portfolio is refinanced.
This lag can create a false sense of security. A country may report stable interest costs during the first year of a tightening cycle because most of its bonds still carry older fixed rates. Several years later, the accumulated refinancing begins changing the entire budget.
Four debt case files.
The scale problem
The United States accounts for a dominant share of OECD refinancing requirements. Deep Treasury markets provide extraordinary financing capacity, but persistent deficits, rising long-term yields and a more price-sensitive investor base increase the risk that new supply must offer higher returns.
The fragmentation problem
European sovereign debt is divided among national issuers with different fiscal positions. Increased defence and infrastructure spending can support growth, but markets may price the debt of weaker countries differently from that of stronger issuers.
The maturity problem
More than half of the outstanding bond stock of low-income issuers is scheduled to mature by 2028. These countries often face borrowing costs near or above 10%, limited investor demand and fewer options for refinancing in domestic currency.
The local-government problem
China is shifting more responsibility for infrastructure investment toward the central government as debt repayment pressure and tighter scrutiny constrain local authorities. Beijing plans approximately 7 trillion yuan in nationally supported infrastructure spending during 2026.
The developing-world debt drain.
The debt problem is most immediate in low- and middle-income economies because they often borrow in foreign currencies, depend on commodity exports and have smaller domestic investor bases.
The World Bank estimates that developing countries paid $741 billion more in external debt principal and interest than they received in new financing between 2022 and 2024. It was the largest net debt outflow recorded in at least 50 years.
This means capital was moving out of countries that still needed funding for electricity, transport, healthcare, food security and climate resilience.
Some borrowers regained access to international bond markets in 2024 and completed debt restructurings worth approximately $90 billion. Access, however, came at a high price. New bond yields were around 10%, approximately double the levels common before 2020.
Debt service exceeds new financing
A country transfers more money to existing creditors than it receives for new development and investment.
Foreign reserves decline
Governments use scarce dollars or euros to repay foreign debt, reducing their ability to stabilize the currency or pay for imports.
Domestic banks absorb more sovereign debt
Banks allocate more balance-sheet capacity to government securities and less to households and private companies.
Public investment is repeatedly delayed
Interest payments become politically difficult to reduce, while infrastructure projects can be postponed with a budget decision.
When interest becomes a government program.
Debt interest is often described as a financial expense. At high levels, it behaves more like one of the largest permanent government programs.
The difference is that interest spending does not directly hire teachers, build transport networks, fund research or increase energy capacity. It compensates investors for capital that was borrowed in the past.
Across the OECD area, government interest expenditure remains close to the highest levels recorded during the past decade. Higher payments are expected to add approximately 2.5 percentage points to the aggregate debt-to-GDP ratio in 2026, almost completely offsetting the reduction produced by inflation.
Raise taxes
Improves revenue and can stabilize debt, but may weaken consumption, investment or political support when households are already under pressure.
Reduce spending
Can lower deficits, but rapid cuts may damage public services, infrastructure and long-term economic capacity.
Borrow again
Avoids an immediate political decision but increases future interest costs and dependence on investor confidence.
The least damaging solution is stronger economic growth. When nominal GDP rises faster than debt, the debt ratio can decline without extreme austerity.
Growth, however, cannot be produced instantly. It requires investment, productive infrastructure, functioning institutions and stable economic policy—the same areas that are often cut when interest costs absorb the budget.
The corporate side of the debt wall.
Governments are not the only borrowers competing for investor capital. Corporate borrowing reached a record level in real terms during 2025, with companies raising funds through bonds and syndicated loans.
The artificial intelligence investment cycle is creating a new group of exceptionally large borrowers. Data centres, semiconductor plants, energy systems and network infrastructure require enormous capital expenditure.
The OECD estimates that nine major AI-related companies could issue approximately $1.2 trillion in corporate bonds between 2026 and 2030.
This does not automatically represent excessive borrowing. Productive technology investment can generate revenue and economic growth. The risk is that corporate and sovereign issuance are increasing simultaneously.
Investors must decide how much government debt, technology debt, defence-sector debt and lower-rated corporate debt they are willing to absorb—and at what yield.
Three stress tests for the debt market.
Rates remain high for longer
Persistent energy, tariff or wage inflation prevents central banks from reducing rates as quickly as governments and companies expect.
The economy slows
Tax revenue weakens, deficits widen and debt ratios rise even without a new spending program.
Leveraged investors retreat
Hedge funds and other leveraged participants reduce positions during volatility, weakening liquidity when governments need to sell large volumes.
The most dangerous scenario combines all three tests. Inflation prevents rate cuts, growth weakens government revenue and leveraged investors become less willing to finance long-term debt.
A country does not need to default for this scenario to cause damage. Higher yields alone can reduce investment, weaken housing, raise bank funding costs and force governments into politically difficult fiscal adjustments.
Why shorter debt creates a hidden risk.
When long-term bonds become expensive, governments can issue more short-term securities. This lowers the initial interest cost because investors generally demand less compensation for lending over several months than over several decades.
The strategy can look efficient today while increasing vulnerability tomorrow.
Short-term debt must be refinanced more frequently. A government that issues a three-month or one-year bill repeatedly exposes itself to changing market conditions.
If interest rates rise, confidence declines or investors demand a higher risk premium, the borrower feels the effect almost immediately.
OECD governments have increased their use of Treasury bills, which now account for roughly 15% of the debt stock covered by the report. Issuance of very long-term fixed-rate bonds has declined relative to securities with maturities of one to five years.
The trade-off is simple: lower cost today in exchange for greater refinancing risk later.
Could inflation solve the debt problem?
Inflation can reduce the real value of fixed-rate debt. Tax revenues and nominal GDP rise, while the amount promised to bondholders remains unchanged.
This effect helped stabilize debt ratios after the pandemic. It is not a free solution.
Investors eventually demand higher yields to compensate for inflation. Households lose purchasing power. Central banks raise interest rates, increasing the cost of new debt. Inflation-linked bonds and short-term securities adjust more quickly.
A government that repeatedly relies on inflation may also damage the credibility of its currency and institutions.
The OECD expects higher interest payments to outweigh the beneficial effect of inflation on the aggregate OECD debt ratio during 2026. The inflation shortcut is therefore becoming less effective precisely as refinancing volumes increase.
Global debt risk score.
Systemic refinancing pressure
The score reflects record borrowing volumes, elevated refinancing requirements, higher interest costs and dependence on increasingly price-sensitive investors. It does not indicate that a universal debt crisis is inevitable. Large differences remain between countries, currencies, maturity structures and institutional strength.
What would reduce the risk?
Extend debt maturities
Reduce the frequency with which governments and companies must return to the market, even when longer-term borrowing initially costs more.
Use borrowing for productive investment
Debt is more sustainable when it finances infrastructure, energy, technology and education capable of increasing future revenue.
Create credible fiscal frameworks
Medium-term plans can reassure investors that temporary deficits will not become permanently accelerating debt.
Broaden the investor base
Diverse domestic and international investors reduce dependence on one group that may disappear during market stress.
Improve debt transparency
Complete information about creditors, guarantees and payment schedules allows risks to be identified before a crisis.
The debt wall is a growth story.
Global debt is often presented as an accounting problem: governments owe too much money and must reduce deficits.
The economic reality is broader. High refinancing costs influence which infrastructure is built, how much companies invest, whether households can afford mortgages and how central banks respond to inflation.
A government spending more on interest has less capacity to respond to recession, conflict, energy shocks or natural disasters. A company refinancing at a higher rate may cancel expansion or reduce employment. A bank holding more government debt may provide fewer loans to private businesses.
The result can become circular. High debt increases interest costs. Higher interest costs reduce productive investment. Lower investment weakens growth. Weaker growth makes the debt burden harder to stabilize.
The $29 trillion figure is therefore not only a measure of financial-market activity. It is a measure of how much of the world economy must be repriced during a period of elevated uncertainty.
The bond market has absorbed record issuance so far. The central question for the remainder of 2026 is whether that resilience continues when governments, corporations and AI infrastructure projects compete for the same pools of capital.
Debt diagnostic FAQ.
Does a high debt-to-GDP ratio automatically cause a crisis?
No. Sustainability also depends on interest rates, economic growth, currency denomination, maturity, investor confidence and whether the country controls the currency in which it borrows.
Why can some heavily indebted countries borrow more cheaply than others?
Investors consider institutional credibility, central bank independence, market liquidity, tax capacity, political stability and the availability of domestic savings.
What is refinancing risk?
It is the risk that a borrower cannot replace maturing debt at an affordable interest rate or cannot find enough investors to purchase the new securities.
Is government debt always harmful?
No. Borrowing can finance productive investment, stabilize the economy during recession and spread the cost of long-lived infrastructure across generations.
Why are low-income countries more vulnerable?
They often have smaller domestic capital markets, lower tax capacity, more foreign-currency debt and limited access to affordable emergency financing.
Can central banks simply buy government bonds?
Central banks can support market functioning, but permanently financing government deficits can weaken monetary credibility and intensify inflation or currency risks.
Sources and further reading
This article is provided for general information and economic analysis. It does not constitute financial, investment, legal, accounting or tax advice.
Author
Selina Davies ist Technologieautorin und Blockchain-Enthusiastin mit einer Leidenschaft für die Vereinfachung komplexer Themen. Mit ihrer langjährigen Erfahrung in den Bereichen Fintech und dezentrale Systeme konzentriert sie sich darauf, ihre Leser durch klare, präzise und ansprechende Inhalte über die Zukunft der digitalen Innovation aufzuklären.