To tackle the health crisis caused by the COVID-19 pandemic and its massive impact on economies and financial markets, governments and central banks of the OECD countries have deployed a wide range of measures since March 2020. In addition to large discretionary fiscal stimulus packages, automatic fiscal stabilisers have also led to sudden and significant increases in cash requirements. As a result, sovereign borrowing needs have surged in many countries.

During the first five months of this year, OECD governments increased their issuance of debt securities significantly, in total surpassing the historical average by almost 70% with significant variation across countries. The total market borrowing is expected to reach an unprecedented level of USD 28.8 trillion in bonds and bills in 2020. With interest rates are at record lows reducing the cost of borrowing in most OECD countries, the primary challenge for many sovereign issuers is to increase debt issuance significantly without undermining the functioning of sovereign bond markets.

This report, first published in February 2020, has been revised to reflect changes due to the coronavirus (COVID-19) pandemic using data up to end-May 2020. In addition to an overview of sovereign debt developments in the OECD area, the report discusses near and medium-term policy considerations for sovereign debt management in view of increased global uncertainties and higher government refinancing needs.

Key findings

• In the OECD area, the fiscal stimulus packages that have been introduced to mitigate the economic and social impact of the COVID-19 outbreak, leading to a sudden and dramatic increase in government borrowing needs. In addition, automatic fiscal stabilisers as well as the differences in time and size of cash flow estimates have led to rapid rises in cash needs in many countries.
• Despite generally volatile market conditions, OECD governments raised a record amount of funds from the markets during the first five months of 2020. The total amount of government securities issued between January and May 2020 reached USD 11 trillion, which was almost 70% higher than the average amount issued in the same period over the past five years.
• In the context of highly uncertain economic outlook for the rest of the year, the survey results indicate that gross borrowing needs of OECD governments will increase by almost 30% in 2020 compared with the pre-COVID estimates. Sovereign debt managers have reported that the current challenge is to increase issuance without undermining the functioning of sovereign debt markets.
• For the OECD area as a whole, outstanding central government debt is expected to increase from USD 47 trillion in 2019 to USD 52.7 trillion at the end of 2020. This is USD 3.5 trillion higher than the pre-COVID estimate. As a result of both the rapid increase in borrowing needs and the decline in GDP across OECD economies, the central government marketable debt-to-GDP ratio for the OECD area is projected to increase by 13.4 percentage points to around 86% in 2020, the largest increase in a single year since 2007.
• The sovereign debt management offices have taken steps to adapt their borrowing operations to a rapidly changing environment with respect to funding needs and investor demand. Main changes in borrowing operations have so far included an increase in the size and frequency of auctions; a larger use of syndications and other issuance techniques; a higher issuance of short-term financing instruments compared to long-term bonds; and the introduction of new maturity lines.
• As circumstances evolve, debt management offices continue to adjust their rules and practices. However, some of the measures taken are short-term in nature and will not fundamentally change the principles of debt management. It is therefore of a significant importance to communicate clearly with investors and other market participants the expected duration of new measures to avoid potential misinterpretations.
• The pandemic has underscored the importance of emergency funding tools for sovereign issuers in addressing short-term funding needs and avoiding a temporary increase in borrowing costs from the market. In the medium and long-term, preparedness for higher refinancing risk is critical for sovereign issuers with heavy debt repayment requirements. Policy makers should consider investor demand when adjusting their borrowing strategies to mitigate re-financing risk, and increase their financing capacity, such as by introducing new securities and diversifying the funding sources. […]