After climbing since the outbreak of COVID-19, Asia-Pacific sovereign borrowing should stabilize in 2024. S&P Global Ratings expects the region's long-term commercial borrowing to amount to US$3.9 trillion this year, after an estimated US$4.1 trillion in 2023. Smaller 2024 issuances out of Japan account for much of the decline.

Australian and Korean governments are among the major sovereigns that we anticipate will borrow less than in 2023. Pakistan and Sri Lanka, currently under IMF programs, should also borrow less than in 2023.

Most other sovereigns will increase borrowing this year. We expect China to increase borrowing by the most, rising by about US$110 billion. Thailand and the Philippines are also likely to see significant increases in borrowings.

We project Asia-Pacific commercial government debt will increase by US$1.7 trillion, bringing the year-end total to US$20.6 trillion. The total commercial debt stock of governments in the region declined in both 2022 and 2023 despite net long-term borrowing amounting to more than US$1 trillion in each year. In large part, the drops were due to the significant depreciations of the Japanese yen and Chinese renminbi vis-à-vis the U.S. dollar over these two years. This caused a decline in the amount of debt owed by the Chinese and Japanese governments, as measured in U.S. dollars.

Smaller Japanese Issuance Drags Down Overall Asia-Pacific Borrowing

We believe Japanese government debt issuance will drop sharply this year. In our estimation, compared with fiscal 2023 (ending March 31, 2024), Japanese borrowing will fall by more than US$250 billion on the back of a slightly smaller budget deficit and a large decline in refinancing needs. This will bring borrowing down to US$1.4 trillion, from US$1.6 trillion in fiscal 2023. Japanese government borrowing may come in higher than our estimates if the government implements a supplementary budget later in the year that increases planned borrowing.

Even with a supplementary budget, Japan is unlikely to top the list of government borrowers in Asia-Pacific this year. In 2024, we expect the Chinese government to borrow more than other governments in the region. We estimate China will borrow US$1.7 trillion this year, up from US$1.6 trillion in 2023. It will account for about 44% of total Asia-Pacific long-term government commercial borrowing. This reflects our view that the budget deficit will remain close to 3% of GDP to support the recovery of the Chinese economy with fiscal transfers to weaker local governments.

Another reason for the growing Chinese borrowing, compared with Japan, is the widening gap between the sizes of their respective GDP, measured in U.S. dollars. By this measure, the Chinese economy is about 25% larger in 2023 than in 2019. The Japanese economy, mainly due to yen weakness, has shrunk by about 18% in the same period.

Other major Asia-Pacific governments are also likely to borrow more in 2024. As a share of GDP, however, we project their fiscal deficits to fall relative to 2023. Most economies in the region should still have healthy growth. And inflation has become less of a burden. Consequently, we expect budgetary performances to improve for most governments.

A few Asia-Pacific governments may see lower borrowing this year. With the budget of the Australian central government returning to a surplus position, we anticipate a sharp decline in borrowing needs in 2024. In Korea, despite an increase in the government deficit, issuances should be lower due to the reduced repayment of maturing long-term debt this year. In the case of Pakistan and Sri Lanka, the IMF programs they are undergoing will likely bring down new borrowing by the two governments.

Chart 1

By our estimates, Asia-Pacific sovereigns will use nearly 75% (or US$2.9 trillion) of their gross long-term commercial borrowings in 2024 to refinance maturing long-term debt (with an original maturity of above one year). Net long-term commercial borrowings come close to US$1 trillion this year (see tables 1-3 and chart 1).

Projected issuance this year will raise the Asia-Pacific sovereign commercial debt stock to an equivalent of US$20.6 trillion by the end of 2024, up by US$1.68 trillion from 2023. If we include bilateral and multilateral debt, the total stock in 2024 will reach US$21.1 trillion, US$1.72 trillion above that in 2023. The share of noncommercial official debt (bilateral and multilateral) in total long-term sovereign debt will likely be approximately 2.2%.

Asia-Pacific central governments that we rate as investment grade owe almost all sovereign commercial debts in the region. In part, that's because the biggest economies in the region are where sovereigns are rated investment grade.

The two largest speculative-grade sovereigns by economic size in the region-- Bangladesh and Vietnam--account for just 0.5% and 0.6% of total Asia-Pacific central government commercial debt, respectively. Pakistan, the next largest, owes much more than that, accounting for 0.9%. The share of debt in the rating category of 'BB' or below is set to account for 2% of total commercial debt in 2024.

Chart 2

At the end of this year, we project the share of commercial sovereign debt rated 'AAA' at 7.3% of total commercial debt. This is a slight decrease from the 7.6% share in 2023. The decline mainly reflects the drop in Australian debt levels (see chart 2).

Table 1

Most Asia-Pacific Governments Face Higher Borrowing Costs

Japan's debt-rollover ratio (including short-term debt) should decline to 60.8% of GDP in 2024, from nearly 62% a year earlier (see chart 3). One reason is the government's efforts to reverse the shortened maturity of Japanese government bond (JGB) issuances in recent years.

In fiscal 2020 (ending March 31, 2021), the government increased short-term issuances sharply to fund its large fiscal response to the COVID-19 pandemic. This cut the average maturity of Japanese government bond issuance to six years and eight months, from nine years in fiscal 2019. It has been increasing longer-term issuances to replace the short-term debt in subsequent years. In fiscal 2024, it plans to raise the average maturity of JGB issuances by another six months, from a year ago, to eight years and seven months.

Chart 3

By the end of 2023, the weighted average maturity of outstanding Japanese debt had risen to nine years and six months. It had fallen to eight years and 11 months in fiscal 2020. The recovery in average maturity of outstanding debt is important as interest rates in Japan have continued to rise in 2023.

Across the yield curve, Japanese interest rates have increased over the past year. Currently, government bond yields for maturities above a year are all positive. This contrasts with the situation before 2021, when even the 10-year yield was often below zero.

This means that interest payments will increasingly weigh on the Japanese central government budget. Fiscal 2023 could be the second year since fiscal 2015 that government spending on debt interest payment increases. The relatively long average maturity of Japanese government debt will temper the interest burden even if interest rates rise further.

Most other Asia-Pacific governments are also facing higher interest rates this year. However, in most cases where financing costs are higher, the increases are modest. The exceptions are Bangladesh and Pakistan, where short-term interest rates in January this year are more than 3 percentage points higher compared with a year earlier.

The relatively light Bangladeshi debt burden, coupled with a large share of long-dated multilateral debt, meant that the higher interest rates have little impact on its rollover ratio. For Pakistan, where debt levels are higher at more than 70% of GDP, the impact is larger. Nevertheless, support from multilateral financial institutions and a relatively low share of short-term debt also limit the increase in the rollover ratio.

Table 3

Table 4

Table 5

Methodological Note

The debt-rollover ratios for infrequent issuers, such as the Cook Islands, with small but lumpy debt obligations, can be very low if they have little or no debt maturing in the year, or if those issuers do not have much short-term debt. The rollover ratios of sovereigns that have a higher proportion of official debt tend to be lower, because official debt typically has longer maturities than commercial debt.

These projections only account for the 21 Asia-Pacific sovereigns rated by S&P Global Ratings (see ratings list in table 5). Our estimates focus on debt that is issued by a central government (or a government that we rate using our sovereign rating methodology) in its own name, and in most cases exclude local government and social security debt as well as debt issued by other public bodies and government-guaranteed obligations. In terms of commercial debt instruments, our estimates for long-term borrowing include bonds with maturities of more than one year issued either on publicly listed markets or sold as private placements, as well as commercial bank loans.

In addition to commercial debt, some of the estimates we use in this study include official bilateral and multilateral debt. We do not include government debt issued by central banks for monetary policy purposes. All reported forecast figures are our own estimates, and do not necessarily reflect the issuers' projections. Our estimates are based on our expectations regarding central government deficits, our assessment of governments' potential extra-budgetary funding needs, and our estimates of debt maturities. Estimates that we express in dollars are subject to exchange rate variations.

Editor: Lex Hall

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