Loose fiscal policy is one of the factors that underpins our assumption for a soft landing for the global economy this year. Budget deficits in most sovereigns will remain higher than before the pandemic as growth slows and structural spending pressures stay high. The list of persistent fiscal items is long, among which are social transfers, tax and spending measures to contain energy and food prices, and elevated defense bills. All of these are difficult to contain or roll back, given upcoming elections. Moreover, government interest spending will remain elevated in the foreseeable future. Even if borrowing costs have likely peaked and monetary normalization in the developed world could ease funding pressures further this year, the cost of new and existing debt is at a high point compared with the last 10 years. In this context, we expect sovereign long-term borrowing to stay well above pre-pandemic levels this year and thereafter.

We project that the 137 sovereigns we rate will borrow an equivalent of $11.5 trillion from long-term commercial sources in 2024.   This is an 8% increase over 2023 and more than 50% above the levels recorded before the pandemic-induced peaks in 2020-2021. Gross sovereign commercial borrowing has only been higher at the apex of the pandemic in 2021, and 2024 issuance is set to almost reach these levels (see table 1). All numbers in this report are converted into U.S. dollars, so exchange rate movements also influence borrowing trends.

Table 1

Fiscal deficits loom large in the busy 2024 election calendar.   Fiscal deficits have soared. Governments shored up borrowing to finance mitigating measures against the double shock of the COVID-19 pandemic and high commodity prices (including for food and energy) that initially arose during the post-pandemic recovery and were later amplified by the Russia-Ukraine war.

Reigning in these elevated deficits will prove challenging, especially as more than 50 countries are holding national elections, accounting for around 2 billion people and around 50% of projected borrowing in 2024 (see chart 1).

Chart 1

Past government emergency fiscal measures might prove hard to unwind in the face of social discontent. In addition, increased fragmentation adds to expenditure pressures in several areas and across developed and emerging markets. But pre-election spending is not the only concern; election results could equally lead to regional and global policy shifts and alter fiscal trajectories and borrowing needs.

Geopolitical concerns have added another layer of fiscal pressure.   Official estimates of the North Atlantic Treaty Organization (NATO) put member states' spending at 2.7% of their combined GDP on defense, the highest levels in decades. Some NATO members, including in Central and Eastern Europe, are targeting as much as 4% of GDP toward defense in 2024. Given elevated geopolitical uncertainly, defense budgets in other countries will also likely remain larger than usual, putting long-term pressure on spending.

Elevated gross borrowing also reflects substantial debt-refinancing needs.   COVID uncertainty led many sovereigns to accelerate short-term borrowing. The trend was especially visible, for example, in the U.S., Japan, and Germany, where the share of short-term borrowing increased to over one-third of the total borrowing during the pandemic. The estimated average share of short-term debt in the global stock of sovereign debt was 14.8% in 2023, significantly higher than the 9.5% recorded in 2019. In tandem with broadly stagnant average long-term debt maturity over the past two years of about 8.5 years, the rollover ratios for many sovereigns remain high (see table 2). The trend will likely be more pronounced in lower-rated emerging market sovereigns, where we observe a shift to domestic borrowing, with its shorter average maturity. This is because the sizable increase in debt issuance since the onset of the pandemic has reduced domestic markets' capacity to absorb new longer-term debt.

The U.S. continues to post the largest nominal increase in borrowing among all sovereign,s amid elevated deficits and protracted consolidation.   We project U.S. long-term borrowing will reach $4.5 trillion, which is $1 trillion higher than 2023 and its highest level recorded. The share of the U.S. in global long-term borrowing issuance will pick up this year to 40% from an average of 35%-36% in the last decade. Our U.S. projections reflect wide fiscal deficits, driven by past tax and spending decisions, but also the expectation of softer growth, the upcoming presidential elections, high interest spending, and substantial debt refinancing requirements. Another explaining factor is our expectation that the U.S. government will slightly change the borrowing mix toward longer-term issuance (note our estimates above refer to long-term issuance). Since the pandemic, U.S. short-term issuance has been elevated.

Other G-7 countries will maintain borrowing at higher levels, with the U.K. government posting the biggest year-on-year increase in 2024.   European sovereigns, including Italy, Germany, and France, which are also among the largest global issuers in absolute terms, will keep borrowing broadly flat versus 2023, albeit at high levels of almost $400 billion for Italy and over $300 billion for France and Germany. At the same time, the U.K. is increasing its issuance by almost 30% this year to around $350 billion. The borrowing trends also mirror the different fiscal dynamics in Europe, as governments shift only very gradually towards budgetary consolidation.

Lackluster growth performance and persistent spending pressures amid domestic political challenges will also keep long-term borrowing for large Latin American sovereigns at the same highs as last year.   The two largest issuers, Brazil and Mexico, will borrow the equivalent of $280 billion and $180 billion, respectively, in line with the historical highs in 2023. This reflects a widening of fiscal deficits in Mexico and continued high deficits in Brazil, as well as high roll-over needs of over 20% of the total debt stock for both. Mexico will also raise debt on behalf of state-owned Pemex in 2024. We project Argentina's borrowing will drop in 2024, amid its economic shock therapy and reflecting exchange rate depreciation (see table 3).

After climbing since the outbreak of COVID-19, Asia-Pacific sovereign borrowing should stabilize in 2024, with China surpassing Japan's long-term borrowing.  We expect governments in this region to borrow $3.9 trillion this year, after an estimated $4.1 trillion in 2023. Much of the trend is due to smaller 2024 issuances out of Japan, but also in Australia and Korea. Pakistan and Sri Lanka, currently under IMF programs, should also borrow less than in 2023 while India is set to keep its borrowing flat in 2024 at $278 billion. Notably, China is increasing its borrowing in 2024 by 7% to $1.7 trillion. This reflects our view that the budget deficit will remain elevated at nearly 3% of GDP to support the recovery of the Chinese economy with fiscal transfers to weaker local governments. We also note the exchange-rate effect that correspondingly reduces or increases the U.S. dollar value of local-currency borrowing for sovereigns with depreciating or appreciating currencies.

Debt will be more costly to service in the era of higher interest rates and possible more volatile conditions.   We expect major central banks, such as the U.S. Federal Reserve and the European Central Bank, to start cutting rates in 2024. The Fed's policy will also drive the extent and pace of monetary easing by emerging market central banks, though some--primarily in Latin America--like Brazil, Colombia, and Chile--have already started to cut. But market participants' expectations on timing and extent of rate cuts diverge, introducing the risk of bouts of market volatility if expectations shift. This risk could become even more relevant if core inflation--contrary to current expectations--were to persist and defer rate cuts longer than currently expected.

Issuance costs have surged in recent years but have likely peaked.   That said, and despite the elevated share of inflation-indexed debt for some, it will still take time for the current high market rates to spill over into the effective cost of servicing the stock of government debt in many advanced economies. This is because these governments benefit from generally longer-term debt maturities offered by their deep domestic capital markets. In a longer-term perspective, it is noteworthy that the effective interest rate is still well below the rates in effect before the global financial crisis of 2007-2009 for many developed markets (see charts 2 to 5).

Chart 2

Chart 3

Chart 4

Chart 5

Stronger emerging market sovereigns might see generally supportive funding conditions in 2024.  Many emerging market central banks embarked on a tightening cycle earlier than those in developed market economies, pushing up sovereign borrowing costs substantially even before government bond yields picked up globally. In our base-case soft-landing scenario, continued disinflation in emerging markets and the expected monetary easing in major developed markets will imply that borrowing costs for stronger emerging markets are set to decrease, and we have already seen several countries take advantage of favorable opportunities with U.S. dollar and Eurobond issuances in early 2024.

However, given the generally shorter debt profiles, the effective interest rates on the outstanding debt stocks have risen fast for many (see charts 6 and 7).

Chart 6

Chart 7

Multiple past shocks have resulted in a greater number of sovereigns rated 'B-' or lower, indicating elevated credit risk in 2024, which could also pose contagion risk for other emerging markets and affect their borrowing costs.   In places where authorities have weaker capacity to mobilize tax revenue and finance critical services, higher cost of debt translates into exceptionally high interest burdens, sometimes exceeding one-third of total government revenue (see chart 8). For countries with large debt stocks and reliance on foreign currency borrowing, high interest bills represent a noteworthy risk. We rate a significant number of these sovereigns at 'B-' or below, signaling the high risk of debt distress.

Chart 8

The global sovereign debt stock as a share of GDP will increase further this year as nominal growth remains subdued and fiscal deficits remain wide.   By our estimate, sovereign commercial debt as a proportion of GDP will increase to about 67.8% in 2024 from 65.9% in 2023. This level is notably lower than the pandemic-induced peak of 74% of GDP in 2020. Post-pandemic economic recovery, high inflation, and government efforts to normalize fiscal policies put global commercial sovereign debt on a downward path in 2021-2022. However, that trend is again on an upward trajectory since 2023, reflecting sluggish growth and wide fiscal deficits amid multiple crises (see chart 9).

Chart 9

By end-2024, we project the commercial sovereign debt stock will reach a record of $71 trillion, the most ever in absolute terms.   Nations in the G-7 will contribute around 65% of the total commercial debt stock of all rated sovereigns (see charts 10 and 11). The U.S. is by far the largest sovereign issuer and China has taken over the No.2 spot from Japan. The U.S. alone accounts for about 39% of the global total, followed by China at 15% and Japan at 12%.

Chart 10

Chart 11

Investment-grade sovereign borrowing will account for the majority of total issuance.   We project that, during 2024, the share of commercial sovereign debt issued by countries rated 'AAA' (foreign currency) will account for a modest 8% of the total estimated commercial debt stock and 5%of total long-term commercial borrowing. Similar to recent years, one-half the total debt stock will fall into the 'AA' category because three of the top six sovereign debtors (the U.S., U.K., and France) fall into this rating category (see chart 12). Before the 2007-2009 global financial crisis, almost 60% of the debt stock was rated 'AAA' (as were the U.S, U.K., and France) compared with today's 8% (assuming a constant share in global debt). This signifies a substantial credit quality deterioration of a large share of sovereign debt, which we reflected in our ratings.

Chart 12

The share of the debt stock and long-term commercial borrowing by sovereign issuers rated in the 'BB' category or below (speculative grade) accounts for about 9% and 14%, respectively, of the global total.   Brazil, accounting for about $278 billion (or 2.4%) of global sovereign commercial borrowing, remains by far the largest speculative-grade borrower this year. Among all sovereign borrowers, it ranks nineth globally (see table 2). Contrary to previous years, there is only one other speculative-grade borrower in the top 20 sovereigns by absolute borrowing volumes in 2024, Turkiye, which accounts for 0.6% of the global total.

Sovereign sustainable bond issuance in 2024 will be slightly below the historical high seen in 2023.   In 2023, the sovereign issuance of green, social, sustainable, and sustainability-linked bonds totaled $136 billion, up 45% compared with 2022, exceeding our initial projections. Government borrowing plans for 2024 indicate that issuance of this type of bonds will be slightly lower than in 2023, but we note that, historically, actual issuance has exceeded initial targets. That said, gross sovereign issuance will remain above the 2020 level. Issuers from developed markets in Europe, including EU member states, are the key sustainable borrowers from the flow and stock perspectives (see charts 13 and 14).

Chart 13

Chart 14

Estimates in this report do not take into account sovereigns not rated by S&P Global Ratings.   Since few sizable sovereigns remain unrated, however, we see our data as a reliable reflection of global developments in sovereign debt and borrowing. Our estimates focus on debt issued by a central government in its own name. We 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 borrowing include bonds, issued either on publicly listed markets or sold as private placements, as well as commercial bank loans. We do not include government debt that some central banks may issue for monetary policy purposes. All reported forecast figures are our own estimates and do not necessarily reflect the sovereign issuers' projections. Our estimates are informed by our expectations regarding central government deficits, our assessment of governments' potential extra budgetary funding needs, and our estimates of debt maturities in 2024. Estimates that we express in U.S. dollars are subject to exchange-rate variations.

This global report summarizes a series of simultaneously released regional sovereign borrowing and debt reports, which we list in the "Related Research" section below. We have produced detailed reports for developed EMEA, emerging EMEA, Asia-Pacific, and the Americas.

Table 2

Table 3

Table 4

Related Research

• Sovereign Debt 2024: The Americas See A Continued Rise In Sovereign Borrowing, Especially In The U.S., Feb. 27, 2024
• Sovereign Debt 2024: Asia-Pacific Central Government Borrowing Stabilizes At Close To US$4 Trillion, Feb. 27, 2024
• Sovereign Debt 2024: Developed European Governments To Borrow About $1.84 Trillion in 2024, Feb. 27, 2024
• Sovereign Debt 2024: EMEA Emerging Market Borrowing To Slow To $492 Billion As The Cycle Turns, Feb. 27, 2024
• Sovereign Ratings List, Feb. 16, 2024, and updated monthly on RatingsDirect