OECD Nations Cut Deficits but Face Tougher Borrowing Future
The Organization for Economic Cooperation and Development (OECD) has reported that its member countries have managed to cut their budget deficits in 2023.
On average, governments spent 4.6% more than they earned, which is better than the 7.5% overspending seen in 2021. Still, this is higher than the 2.9% average before the COVID-19 pandemic.
During the pandemic, governments spent huge amounts to support people and businesses. Now, most have stopped those extra programs, so their deficits have shrunk. However, the total debt that these countries owe is still much higher than it was before the pandemic.
In 2022, government debt was about 83% of the size of their economies, down from a peak of 88% in 2020, but still about 10 percentage points higher than before COVID-19.
Borrowing money has also become more expensive. In 2021, governments could borrow at about 1% interest. By 2023, that cost had jumped to 4%.
This means governments now spend more just to pay interest on their debts—about 2.9% of their economic output in 2023, up from 2.3% in 2021. As old, low-interest loans come due and need to be replaced, these costs will likely keep rising.
The OECD points out that nearly half of all government debt—about $23 trillion—will need to be paid back or refinanced within three years. This puts pressure on governments to find buyers for their new bonds, especially since central banks are no longer buying as many as they did during the pandemic.
Now, private investors must take on more of this debt, which can make borrowing even more expensive. This situation matters for everyone. When governments pay more in interest, they have less money for things like roads, schools, or healthcare.
Higher borrowing costs can also make it harder for businesses to get loans, which can slow down economic growth. If governments cannot manage their debts well, they may have less room to help during future crises.
The OECD says that governments need to be careful with their budgets and manage their debts wisely. The next few years will show how well they can handle these new financial pressures while still supporting their economies.
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