Global Debt Nears 100% of GDP: Is a New Sovereign-Debt Crisis Inevitable?
- Doruk Ünal
- Jun 22
- 20 min read
A Rapid Surge in Global Debt
Global Debt at Historic Highs: Public debt worldwide is climbing at an alarming pace. The International Monetary Fund’s latest Fiscal Monitor (April 2025) warns that global public debt will rise by about 2.8 percentage points of GDP in 2025 – “more than twice the estimate for 2024” – pushing total debt to roughly 95% of global GDP . This marks an acceleration from the post-pandemic lull in debt growth, and projections show the upward trend continuing. At the current trajectory, global public debt could approach 100% of GDP by the end of the decade , surpassing even the pandemic-era peak. In the IMF’s severe adverse scenario, debt could reach 117% of GDP by 2027, a level not seen since World War II .
Widespread Increases: This debt buildup is broad-based. About one-third of countries – representing 80% of world GDP – now have public debt higher than pre-pandemic levels and rising faster than before
. More than two-thirds of economies studied carry heavier debt burdens today than in 2019 . Advanced economies average government debt around 110% of GDP, while emerging and developing economies average about 74% – a gap, but one that is narrowing as debt loads increase across the board. The map below illustrates the landscape of government debt-to-GDP ratios around the world (2025), with many countries now in the high-debt territory (often defined as above 75% of GDP).
*(Above: Global government debt-to-GDP by country in 2025. Darker shades indicate higher debt ratios.)
This surge reflects pandemic-era fiscal support, new spending pressures, and slowing growth. Government budgets are strained by higher interest costs, defense outlays, and social demands even as revenues struggle to keep up . The IMF notes that recent trade tensions – such as steep tariffs by the U.S. and retaliations – have further weakened growth prospects and increased risks, complicating debt dynamics . In short, the world’s fiscal health has worsened in a climate of uncertainty, raising fresh concerns about long-term sustainability . Policymakers face a delicate balancing act: reduce debt and rebuild fiscal buffers while still investing in economic priorities .
Mounting Investor Concerns
Rising Default Fears: As debt piles mount, investor anxiety about sovereign default risk is intensifying. Servicing this debt has become a “top concern for investors, public-sector bankers, and central banks” in the current high-rate environment . One telling indicator is the increased attention to debt risk in popular discourse. In many countries, public interest in terms like “debt crisis” and “default” has surged – for example, the UK now sees over 2,300 Google searches per 100,000 people for debt and credit-related terms, the highest such volume globally . This suggests that both investors and the public are closely watching sovereign debt news, attuned to potential warning signs. Financial media and Google search trends echo this heightened concern, reflecting a collective memory of past crises and fear of history repeating.
Market Stress Signals: In the markets, the cost of insuring against defaults and the risk premiums on government bonds have been flashing caution. Yields on sovereign bonds have climbed sharply for vulnerable nations, and credit default swap (CDS) spreads – essentially the price of default insurance – have widened. Even globally, benchmark yields are up: rising U.S. and European interest rates have a knock-on effect, “leading to higher financing costs” for emerging markets . Investors are demanding greater compensation to hold risky sovereign debt, driving widening spreads in emerging markets and prompting some debt indices to spike. For instance, JPMorgan’s EMBI Global index of emerging sovereign spreads has been under pressure as investors reassess which countries might be next to restructure debts.
A telling example is Argentina’s “country risk” index – the extra yield investors require over U.S. Treasuries. It blew out to 2,500 basis points during the worst of its recent turmoil, but remains around 900 bps even after policy reforms . Such elevated spreads signal lingering skepticism. Investors have also been frantically repricing bonds of other financially strained nations, driving some deep into distressed territory. This was evident when Pakistan and several African frontier markets saw bond prices sink to levels implying high default probability earlier in the year. Rising global interest rates have effectively tightened the vice on high-debt countries: their borrowing costs rise just as their debt loads swell – a potentially toxic combination.
Case Studies: Emerging Markets on the Brink
Investor concern is not abstract – it’s grounded in real stress visible in several economies. Recent months have seen market turmoil in multiple emerging markets, as evidenced by soaring bond yields, ratings downgrades, and pleas for international support. Below, we examine a few emblematic cases:
Argentina: Long a poster child for sovereign defaults, Argentina has defaulted nine times in its history . Years of chronic deficits and high inflation have left the country perpetually on the brink. By end-2023, Argentina’s public debt had ballooned to roughly 155% of GDP (partly due to a collapsing currency) . Decades of “original sin” – reliance on short-term and foreign-currency debt – means any shock can quickly undermine the peso and the government’s ability to service obligations . Indeed, the country’s U.S. dollar bonds have been trading at distressed levels; yields hovered in the low double-digits (~10–12%) recently as investors awaited signs of stability. A change in leadership late 2024 sparked a market rally: the libertarian president Javier Milei implemented radical fiscal cuts, managing to erase a deficit over 4% of GDP in one year. This austerity drive “drove down country risk” and even tamed triple-digit inflation . Argentina secured a new $20 billion IMF program and other support, pulling it “back from the brink” for now . Its sovereign spread fell below 900 bps – the lowest since 2019 – and analysts now see “practically no risk of default until 2027” . Still, enormous challenges remain: public discontent over soaring poverty, a deeply polarized political scene, and huge foreign-currency maturities in coming years. Argentina exemplifies both the ever-present risk of default and the possibility of reprieve when credible reforms are enacted.
Egypt: Egypt’s debt dynamics have deteriorated sharply, placing it high on watchlists. Public debt reached about 96% of GDP in 2023 , and more critically, external debt has skyrocketed – topping $165 billion (around 40% of GDP) by late 2024 . Servicing this debt is consuming an alarming share of government resources: Egypt’s debt service (interest + repayments) hit a record $42.3 billion in 2024, over half of government revenues . Such a burden severely squeezes spending on essential services and development. The Egyptian pound has been devalued multiple times, losing over 50% of its value in the past two years, which inflated the local-currency value of foreign debt and stoked inflation. Investors have responded by demanding high yields on Egypt’s bonds. Eurobonds due 2027, for example, trade at about 11– 12% yield – a sign of perceived high default risk (Egypt’s credit rating is deep in speculative territory). Indeed, Moody’s rates Egypt at Caa1, implying a default spread of around 7.4% (over 700 bps) above risk-free rates . The government has turned to the IMF for relief, securing a $3 billion program (on top of previous loans), and Gulf allies have injected funds, but reforms have lagged. A stark indicator of stress: over 50% of Egypt’s budget is now absorbed by interest payments . With global conditions tightening, Egypt faces what one analyst termed a potential “sudden stop” in external financing . Without significant currency and fiscal adjustments, the country could be pushed into restructuring. Investors remain jittery, as evidenced by Egypt’s CDS premiums staying elevated near 800–900 bps in recent months.
Türkiye (Turkey): Türkiye presents a somewhat unique case – its government debt ratio (around 30% of GDP) is relatively low , yet markets have treated it as high-risk due to other factors. Years of unorthodox economic policies (including an era of ultra-low interest rates under political pressure) fueled 40%+ inflation and a plunging lira, undermining investor confidence. To combat inflation, the central bank executed dramatic rate hikes in 2023–2024, lifting the policy rate to 40%+, and bond yields followed suit. Yields on lira-denominated 10-year government bonds surged to roughly 30% by mid-2025 – among the highest nominal yields in the world . (Even 2-year notes were yielding over 32% .) These staggering yields reflect both inflation expectations and credit risk. While public debt is modest, Türkiye has significant foreign-currency corporate debt and a history of balance-of-payments pressure, so investors remain cautious. Türkiye’s 5-year CDS spread oscillated around 300 bps in 2025 , indicating a perceived default risk higher than many peers (Moody’s rates it B1, consistent with about a 4–5% default spread ). On the positive side, Turkey’s new economic team (appointed after the mid-2023 elections) has taken steps to restore policy orthodoxy, and inflation has started to ease from its peak. The country also benefits from a strong banking sector and the fact that general government debt is only ~25–30% of GDP , giving it more fiscal space than other high-inflation economies. Nevertheless, currency risk is the Achilles heel – with the lira still fragile, any loss of investor trust could reignite capital flight. Recent geopolitical tensions and political uncertainties (e.g. elections, policy continuity) also add to risk. In short, Türkiye shows that even low-debt countries aren’t immune to crisis if macroeconomic stability falters. Investors will be watching if the promised return to orthodox policies holds, which could gradually bring those 30% yields back down to earth.
IMF
Case Studies: Advanced Economies Feeling the Strain
Highly indebted advanced economies are also coming under the microscope. Traditionally, rich countries could accumulate debt with relative impunity, thanks to lower borrowing costs and greater policy credibility. But with interest rates rising globally, even these giants are feeling pressure. Two notable examples are Italy and Japan:
Italy: With a gross debt of about 135–137% of GDP , Italy has one of the largest debt burdens in the world (and the second-highest in the Eurozone after Greece). This has long raised fears of a crisis, especially during the euro debt turmoil a decade ago. Today, however, Italy finds itself in a “relative bond market rejuvenation” . Counterintuitively, Italian bonds have been rallying: 10-year yields are about 3.5% – roughly back to Italy’s average borrowing cost since the euro’s inception 38 . The spread Italy pays over safe German Bunds has halved in two years to under 100 bps 39 , near its tightest level since 2010. Several factors explain this resilience. First, debt concerns have become “all relative” – other big economies have caught up. “Italy’s debt-to-GDP, though ~137%, is no longer such an extreme outlier,” as even the U.S. has sailed past 100% and France nears Italy’s level . Second, Italy’s recent fiscal performance improved: it curbed deficits post-pandemic, and unlike many peers, Italy’s debt ratio is not projected to keep rising through decade-end . Third, political stability and ECB support have bolstered market confidence. Prime Minister Giorgia Meloni’s government (in office since 2022) has maintained a consistent fiscal course, and Italy’s credit ratings were upgraded this year (S&P raised Italy to BBB+ in April, and Moody’s moved the outlook to positive) . These developments have instilled hope that Italy can manage its debt without drama. That said, Italy remains vulnerable to interest-rate shocks given the sheer size of its debt and its reliance on market financing. Even at 3.5%, interest eats up a sizable chunk of Italy’s budget, and any return of EU recession or political instability in Rome could widen spreads again. Italy’s bond renaissance is encouraging, but it is not an all-clear – it underscores how fragile market sentiment can swing for a highly indebted sovereign.
Japan: Japan stands in a league of its own with debt at roughly 250% of GDP – the highest of any advanced economy . For years, this seemed a manageable problem thanks to Japan’s unique conditions: the Bank of Japan held interest rates at 0% or negative, and “about 90% of Japan’s debt is held domestically,” largely by risk-averse Japanese institutions . This meant Japan faced little immediate default risk despite debt twice the size of its economy – global bond vigilantes couldn’t easily punish it, and interest costs were minimal. However, 2023–2025 have brought a regime change of sorts. Inflation emerged in Japan for the first time in decades, and the Bank of Japan started to adjust its ultra-easy policy. Yields on Japanese Government Bonds ( JGBs) began rising, and volatility spiked in this once-sedate market . In late 2024 and into 2025, long-term JGB yields hit milestones: the 20-year yield reached about 2.6% (highest since 2010), the 30-year climbed above 3.1%, and the 40-year JGB surged to a record 3.7% . While those rates may seem low by international comparison, for Japan they are the highest in many years – and critically, well above the country’s long-term nominal growth rate. The spike prompted notable alarm in Tokyo: officials warned that “higher rates could further imperil Japan’s finances” , given the massive debt stock. Prime Minister Shigeru Ishiba went so far as to state Japan’s fiscal situation is “worse than that of Greece,” which had a debt ratio of 150% when it nearly defaulted . To calm the market, the Ministry of Finance intervened by reducing super- long bond issuance and even considering buy-backs of long-term bonds . The BOJ, under new Governor Kazuo Ueda, has tread carefully – slowing its bond purchase taper to avoid a disorderly jump in yields . Japan’s saving grace is that its effective interest rate on debt (the average rate it pays) will rise only gradually, since much debt was issued at near-zero rates and has not fully rolled over yet. Still, the direction is clear: debt service costs are starting to mount. Japan’s 10-year bond now yields around 1% (a 15-year high) and could rise further if the BOJ normalizes policy . The yen’s weakness – partly a result of the U.S.-Japan interest rate differential – adds another layer of risk, as it pushes up imported inflation and could limit Japan’s flexibility in controlling yields. Nobody expects Japan to default (the government can ultimately print yen to pay yen debt), but the country may be entering a perilous period where it must choose between allowing higher inflation or drastically tightening its belt to rein in borrowing. Japan illustrates that even for advanced economies, there is a tipping point where debt levels and rising yields become a dangerous mix.
It’s worth noting that other advanced economies are not far behind. The United States, for example, now has federal debt exceeding 120% of GDP , and its interest costs are climbing rapidly as the Federal Reserve’s rate hikes feed through (U.S. 10-year yields hit ~4% in 2024–25, the highest since 2007). The UK and France have also seen their debt ratios surge (UK ~100%, France ~112% of GDP) and have faced market scares – the UK’s 2022 gilt crisis after a botched fiscal plan is a case in point of how markets can punish perceived fiscal profligacy. In short, the debt problem is global, not just an emerging-market issue. The common thread is that high debt + higher interest rates = higher stress for any sovereign. The next section explores how specific factors like interest rates, currency mismatches, and politics feed into the likelihood of crises.
Key Risk Factors: Interest Rates, Currency, and Politics
Why are some countries more likely to tip into crisis than others, even with similar debt levels? Three interrelated factors stand out in assessing sovereign risk today: interest-rate differentials, currency risk, and political instability.
Interest-Rate Differentials: The rapid rise in global interest rates – led by the U.S. Federal Reserve’s tightening – is a game-changer for sovereign debt dynamics. Higher baseline global rates raise borrowing costs for all countries, but especially for those with weaker credit. For emerging markets, the spread above U.S. Treasuries has widened as investors reassess risk in a higher-rate world . “Tighter and more volatile financial conditions in the U.S. may have ripple effects on EMDEs, leading to higher financing costs,” the IMF observes . This dynamic has already played out: many developing countries that borrowed heavily at low rates earlier are now seeing double-digit yields that make refinancing prohibitively expensive. Moreover, as rich-country rates rise, capital flows often reverse: investors pull money from risky markets to chase safer high yields at home, draining liquidity from emerging economies. The impact of a rate shock can be illustrated by a simple scenario: a uniform 200 basis-point (2%) increase in interest rates worldwide. Such a shock would jack up annual interest costs by the equivalent of 5% of GDP for a country like Japan (with debt ~250%/GDP) and about 2.7% of GDP for Italy (debt ~135%/GDP). By contrast, a low-debt country like Türkiye (30%/GDP) would see a smaller 0.6% of GDP increase (though in practice Turkey already pays much higher rates due to inflation). This simulation highlights the vulnerability of high-debt sovereigns – they are far more sensitive to rate spikes. Many emerging nations have shorter debt maturities as well, forcing them to roll over debt more often at new higher rates. That’s why rising global yields have immediately pushed some countries into distress. Simply put, high interest rates can trigger a solvency crisis if a government’s debt load is large and its revenues can’t cover the new, higher interest bills.
Currency Risk: A commonly overlooked factor in sovereign debt crises is the currency composition of debt. Countries that borrow heavily in foreign currencies (typically dollars or euros) are taking on currency risk. If their own currency depreciates, the debt burden in local terms balloons – often a precursor to default. This was a key cause in many past emerging- market crises (Latin America in the 1980s, Asia in the 1990s). It remains relevant today. For example, Argentina and Egypt both have significant portions of debt in dollars. When their currencies plunged (the Argentine peso and Egyptian pound each lost value dramatically), the debt-to-GDP ratio jumped because GDP is measured in local currency while debt was owed in harder currency . This is evident in Argentina’s case: by one calculation, its debt was ~85% of GDP at the official exchange rate, but using a more realistic exchange rate after devaluation, debt shot up to 155% of GDP . Such moves can suddenly make a previously “sustainable” debt level look unsustainable. Currency risk also ties into investor confidence – a sharp depreciation often signals investor flight and can spiral into a self-fulfilling crisis. Countries like Türkiye and Nigeria have sizable foreign-currency debts and have seen their currencies fall, putting pressure on banks and governments alike. On the other hand, Japan’s debt is entirely in yen, and Italy’s in euros, meaning they won’t see the face value of debt explode due to FX changes (though Italy gave up the lira, it effectively borrows in a “foreign” currency – the euro – that it doesn’t control). Investors closely watch foreign exchange reserves as well, since a country that cannot muster enough hard currency to pay external debt is forced into default or IMF assistance. This is why Pakistan, Sri Lanka, and Zambia – all of which faced dwindling FX reserves – ended up defaulting or restructuring recently. In essence, a country with a large foreign-currency debt and a weakening currency has a high crisis probability, as any creditor exodus quickly becomes a funding crunch. Conversely, countries that can print their own currency to pay debt (like the U.S., Japan, UK) have more leeway – they’re more likely to inflate away debt or see their currency weaken than formally default, though bondholders could still suffer losses via inflation.
Political Instability: The third crucial factor is the political dimension. Debt crises are as much political events as financial ones. Often, it’s not ability to pay but willingness (or lack thereof) that tips the scales. A government facing public unrest, regime change, or policy paralysis may choose to default or may be unable to enact the tough measures needed to avoid default. We see this clearly in recent cases. In Italy, politics have surprisingly stabilized (a single government in power since 2022 is a novelty), which has helped in managing debt – as Moody’s noted, a “stable political environment” and commitment to fiscal discipline support Italy’s credit outlook.
Conversely, Argentina’s political pendulum swings between populism and austerity; each swing has debt implications. Under past populist governments, Argentina printed money and ran deficits (fuelling inflation and defaults), whereas the current administration’s reforms boosted confidence but face pushback and could be reversed if politics shifts again . Egypt’s regime, while authoritarian, grapples with social pressures – high food prices and unemployment make subsidy cuts (an IMF demand) politically sensitive, limiting how much adjustment is feasible. Türkiye until recently had a highly unorthodox policy dictated by President Erdoğan, which rattled investors; only after the 2023 elections, when policy shifted under new economic managers, did some confidence return, but political risk remains if there’s any return to previous policies. Even in advanced economies, politics matter: Japan’s willingness to impose fiscal austerity is limited by electoral considerations (politicians there are currently mulling cash handouts ahead of an election , even as officials warn about debt). In the U.S., partisan standoffs over the debt ceiling repeatedly threaten technical default – an entirely political self-inflicted risk. And in the UK, a single ill-conceived fiscal announcement in 2022 (the Truss government’s unfunded tax cuts) triggered a bond market rout, illustrating how markets can punish perceived fiscal irresponsibility overnight. Overall, countries with weak governance, policy unpredictability, or social unrest are viewed as more likely to hit a debt crisis, because making the hard choices to restore debt sustainability may be politically impossible. By contrast, nations that build broad political consensus for fiscal responsibility (or have institutions like independent central banks and fiscal rules) inspire more confidence from investors . In sum, stable and prudent governance is a key bulwark against default.
These factors often interact. For example, a jump in global interest rates (factor 1) might cause a currency slide in an emerging market (factor 2), which then sparks political turmoil as living costs spike (factor 3), altogether creating a perfect storm that ends in default. That feedback loop is what the most vulnerable countries are grappling with in 2025. It’s no coincidence that many of the economies now under the most stress (Argentina, Lebanon, Sri Lanka, etc.) suffer from all three problems at once: they have high interest burdens, large external debts, and unstable politics.
Conclusion: A New Sovereign-Debt Crisis Ahead?
With global debt nearing 100% of GDP and financial conditions tightening, it’s natural to ask if we are on the verge of another wave of sovereign debt crises. The warning signs are certainly present: debt is rising faster now than it did in 2024 , investor wariness is evident in widening spreads and flight- to-quality, and a number of countries (both developing and advanced) are under acute strain. Historical parallels loom large – observers are reminded of the early 1980s (when U.S. rate hikes triggered defaults in Latin America) and the late 1990s (Asian/Russian financial crises), as well as the more recent
Eurozone crisis. There is a growing sense that the risk of cascading sovereign defaults has materially increased.
However, inevitability is a strong word. Whether a full-blown crisis materializes will depend on several factors in the coming months and years:
Global Economic Growth: If global growth holds up (the IMF projects ~3% world growth ), countries will find it easier to service debts (higher GDP means lower debt/GDP and higher tax revenues). Conversely, a recession could spike debt ratios and explode deficits, pushing vulnerable sovereigns over the edge.
Interest Rate Trajectory: A pause or reversal in Fed rate hikes – or an easing of monetary policy if inflation abates – could relieve pressure on debtors. Indeed, some frail countries are banking on rate cuts in 2025 to reduce their interest costs. If instead high rates persist or climb further, more governments will be at risk of “breaking.” The simulated 200 bps shock discussed earlier is a worst-case for many; avoiding that scenario (or cushioning it through refinancing help) is key to averting crises.
Policy Response and Reforms: Perhaps most importantly, how governments and institutions respond will shape the outcome. Proactive fiscal adjustment and structural reforms can significantly restore confidence – Argentina’s recent experience shows that even high-risk cases can buy time with the right policies . The IMF and World Bank are also crucial players. They have been ramping up lending and pushing initiatives for debt restructuring (for example, the G20’s Common Framework) to orderly handle insolvent countries. If international support comes in time (and with realistic conditionality), some defaults can be prevented or turned into negotiated restructurings rather than chaotic collapses. The IMF’s message is clear: governments should “put their fiscal house in order” now – build buffers in good times, strengthen fiscal frameworks, and improve debt transparency – to reduce the chance of crisis. Countries that heed this advice will be better prepared if global conditions worsen.
Market Sentiment Wildcards: Financial markets can be fickle. A change in sentiment can become self-fulfilling (as seen when UK gilts sold off violently in 2022, or when Italy’s spreads ballooned in 2011). On the other hand, concerted central bank action – like the European Central Bank’s emergency bond-buying programs – can backstop sovereign borrowers and calm panic. One cannot discount the possibility of central banks intervening if sovereign stress starts threatening global financial stability. For instance, if Italian yields spiked uncontrollably, the ECB would likely step in with its Transmission Protection Instrument (TPI) to cap spreads. Similarly, Japan’s BOJ still controls its yield curve to prevent disorderly moves. These tools, while not cures for poor fundamentals, could prevent a spiraling crisis of confidence.
Taking all these into account, a new sovereign-debt crisis is not preordained, but the risk is undeniably higher than it has been in years. We may not see a single massive “Lehman moment” – instead, we might see a series of smaller debt events: a default here, a bailout there, a market scare prompting policy U-turns, etc. Indeed, some of this is already happening (several low-income countries have defaulted or restructured since COVID, and just in 2023–2024 we saw Zambia, Sri Lanka, Ghana, Suriname, and others in default). The question is whether a systemic wave will sweep larger emerging markets or even advanced economies into crisis.
Policymakers can still lean against that outcome. By enacting credible fiscal plans, securing contingency financing (e.g. IMF credit lines), and addressing the root causes of investor fears (be it an overvalued peg, an untenable subsidy, or a political impasse), countries can buy valuable breathing room. As the IMF emphasizes, “fiscal resilience” and restoring confidence and trust are paramount . That includes ensuring transparency in public finances and communication with stakeholders (markets and citizens alike) . For many emerging markets, a combination of debt reprofiling and reform may be needed – tackling unsustainable debts via negotiations while implementing growth-enhancing and austerity measures to stabilize the trajectory.
In conclusion, the world is at a precarious juncture: global debt is near record highs and rising, and the conditions that kept borrowing cheap have faded. Investor concern is evident in both search trends and market pricing – they are essentially asking: “Who’s next?” The answer depends on how deftly nations navigate the minefield of high rates, currency fluctuations, and political pressures. A new sovereign-debt crisis can be averted if the warning signs are heeded. But without timely action, we could indeed see the dominoes of default start to fall. In the words of one IMF official, governments must “redouble their efforts to keep their fiscal houses in order” – the stability of the global financial system may well hang in the balance.
Table: Debt Metrics of Selected Economies (2025)
Country Debt-to-GDP 10-Year Bond Yield Default Spread (≈5Y CDS)
Sources: IMF World Economic Outlook, Trading Economics, Reuters, Moody’s/S&P. Debt-to-GDP figures are latest estimates (end-2023). Bond yields are as of mid-2025 (local currency 10-year rates for Italy & Japan; USD Eurobond yields for Argentina & Egypt; Turkey yield is local 10y). Default spread is the approximate credit risk premium over risk-free (derived from CDS or ratings). Higher spread = higher perceived default risk.
Figure: Interest Rate Shock Simulator – 200 bps Increase
Japan: +5.0% of GDP in annual interest cost (high debt magnifies the impact)
Italy: +2.7% of GDP in interest cost (already spends ~3% of GDP on interest)
Egypt: +1.9% of GDP in interest cost (large debt, but some on concessional terms)
USA: +2.5% of GDP in interest cost (debt now ~125% of GDP)
Türkiye: +0.6% of GDP in interest cost (low debt softens the blow)
Illustrative scenario assuming an instantaneous repricing of debt at +2% higher rates. In reality, effects would phase in over time as debt rolls over. The exercise shows the stark difference: high-debt countries face a much heavier burden from rate shocks.
Ultimately, is a new sovereign-debt crisis inevitable? Not necessarily – but without proactive management, the odds are uncomfortably high. The world’s debt clock is ticking, and the next few years will test which nations can defuse their debt bombs and which ones succumb to them. Vigilant investors, vigilant policymakers, and a bit of economic luck will determine the answer.
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