LONDON (CNBC) — Global sovereign debt is expected to climb by 9.5% to a record $71.6 trillion in 2022, according to a new report, while fresh borrowing is also broadly set to remain elevated.
In its second annual Sovereign Debt Index, published Wednesday, British asset manager Janus Henderson projected a 9.5% rise in global government debt, driven primarily by the U.S., Japan and China but with the vast majority of countries expected to increase borrowing.
Global government debt jumped 7.8% in 2021 to $65.4 trillion as every country assessed saw borrowing increase, while debt servicing costs dropped to a record low of $1.01 trillion, an effective interest rate of just 1.6%, the report said.
However, debt servicing costs are set to rise significantly in 2022, climbing around 14.5% on a constant-currency basis to $1.16 trillion.
The UK will feel the sharpest effect on the back of rising interest rates and the impact of surging inflation on the substantial quantities of UK index-linked debt, along with the costs associated with unwinding the Bank of England’s quantitative easing program.
Germany has already vowed to ramp up its defense spending to more than 2% of GDP in a sharp policy shift since Russia-Ukraine crisis, along with committing 100 billion euros ($110 billion) to a fund for its armed services.
New sovereign borrowing is expected to reach $10.4 trillion in 2022, almost a third above the average prior to the Covid-19 pandemic, according to the latest global borrowing report from S&P Global Ratings published on Tuesday.
“We expect borrowing to stay elevated, owing to high debt-rollover needs, as well as fiscal policy normalization challenges posed by the pandemic, high inflation, and polarized social and political landscapes,” said S&P Global Ratings credit analyst Karen Vartapetov.
The ongoing conflict’s global macroeconomic repercussions are expected to exert further upward pressure on government funding needs, while tighter monetary conditions will increase government funding costs, the report highlighted.
This poses a further headache for sovereigns that have thus far struggled to reignite growth and cut reliance on foreign currency financing, and whose interest bills are already substantial.
In advanced economies, borrowing costs are expected to rise but likely remain at a level that will allow governments time for budget consolidation, S&P said, offering governments time for budget consolidation and focus on growth stimulating reforms.