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Sovereign Borrowing Outlook 2019

(From the Remarks by Angel Gurría, OECD Secretary-General, 23 April 2019 - Paris, France - As prepared for delivery)

Central government debt is double that of pre-crisis levels in nominal terms

During the past decade, the sovereign debt structure in OECD countries has been significantly affected by policy responses to the Global Financial Crisis. Between 2007 and 2018, the borrowing needs of OECD governments surged. Outstanding central government debt doubled in nominal terms from USD 22 trillion in 2007 to USD 45 trillion in 2018, and is projected to rise to USD 47 trillion in 2019. This is equivalent to 73% of the OECD’s GDP, up from about 50% before the crisis. There is of course a wide range among OECD economies – Japan’s marketable debt amounts to some 185% of GDP, while Estonia has none at all. A worrying aspect of the public debt picture is that our assessment of the global economic outlook has been worsening of late, and we see the possible need for concerted fiscal action to offset a weakening of demand.
At the same time, more accommodating monetary policy and funding conditions have attenuated debt sustainability concerns. Indeed, even though growth rates have declined relative to the pre-crisis period, interest rates have fallen even more, and this has slowed the rise in debt-to-GDP ratios in several countries.
Well-designed public debt management strategies should take into account cost and risk factors and can thus enhance the resilience of public finances. Interest rate, maturity and currency choices can also make a difference in reducing vulnerabilities to shocks. In OECD countries, sovereign issuers took advantage of the low-interest-rate environment to extend debt redemption profiles and limit rollover risks. For example, the average term to maturity of public debt in the OECD area increased from about 6 years in 2007, to 8 years in 2018.

OECD governments need to start refinancing their debts

But the pressure is still there. Funding challenges are likely to grow in some OECD economies. Over the next three years, governments will need to refinance around 40% of their market debt. In some countries, new borrowing requirements will also be substantial, and the combination of sizeable redemptions and large budget deficits is likely to create challenges in the market for some sovereign debt managers. These challenges can be further compounded by political uncertainty.
OECD sovereigns are expected to borrow more than USD 11 trillion from markets in 2019 alone. Our report shows that having an effective communication strategy with investors will remain a critical element to navigate debt management challenges.
This Outlook also looks at the challenges faced during the European sovereign debt crisis, and highlights tools to address stressed market conditions. Building a resilient debt portfolio is crucial. But it would be naïve to believe that we can avoid all future crises. And when they occur, having contingency tools in place to weather the storm is very important.
As the Outlook shows, this is one of the lessons of the European sovereign debt crisis, which hit Greece, Iceland, Ireland and Portugal particularly hard. Insights gleaned from the crisis – such as being a transparent and predictable issuer, building contingency funding tools and having a solid relationship with investors – remain valid. For example, Ireland and Iceland enhanced their investor-relations programmes and Portugal built up a cash buffer against liquidity risks.

Sustainable finance is another challenge

Our efforts to refinance sovereign debt also have to be environmentally friendly. We know that demographic shifts and climate change will have a significant impact on the long-term prosperity of nations. This makes unlocking finance for sustainable development a major challenge that we need to address head-on. It’s encouraging to see that the number of investors and governments committed to the transition towards a greener economy is on the rise.
Sovereign bond issuance for green projects has gained momentum in recent years. Poland was the first sovereign to issue a green bond in 2016. Others have followed, including France, Belgium, Lithuania, Indonesia, Ireland and the Netherlands. In the OECD area, the issuance of sovereign green bonds to date exceeds EUR 24 billion. Although still nascent, this market can be expected to keep growing.
Issuing sovereign green bonds, however, is not the only way for sovereign debt managers to promote sustainable development and finance. They can also improve the flow of information about government actions in this area. For example, Finland’s Treasury adapted its investor relations and communications strategy to promote sustainable development.


Launch of the Sovereign Borrowing Outlook 2019