The gross borrowing needs of OECD governments are projected to
to around $10.9tn in 2013, up from the already high level of $10.8tn in 2012, according to a new OECD report.
The OECD Sovereign Borrowing Outlook 2013 expects
that ratings agencies will continue to keep the pressure on governments in 2013.
Given their poor track record of sovereign risk pricing over the past twenty
years, the report suggests that any downgrades should be carefully scrutinized,
and not taken at face value.
The general government deficit for the OECD area as a whole is estimated to have
reached 5.5% of GDP in 2012, equivalent to around $2.6tn. It is
projected to decrease to 4.6% of GDP in 2013, equivalent to around $2.3tn.
Government debt ratios for the OECD as a whole are expected to grow or remain at
high levels during the coming year. General government debt-to-GDP is projected
to reach 111.4% in 2013. The good news, according to the report, is that overall
debt ratios are increasing much more slowly than in the past, declining from an
increase of 11.5% in 2008-2009 to a projected 1.1% increase in 2013-2014.
Eurozone-induced contagion effects in 2011 led to upward pressures on funding
costs and roll-over risk for sovereigns, as well as a reduced ability by
financial institutions’ to pledge sovereign securities as collateral and
flight-to-safety by investors. However, the recently announced combined Outright
Monetary Transactions and European Stability Mechanism backstop has had a
noticeable downward influence on bond yields in peripheral markets.
In countries where public deficits and debt ratios have not begun to decline,
the legacy of public debt exposes governments to shifts in confidence,
complicating the implementation of issuance programmes by sovereigns. Raising
large volumes of funds at lowest cost to refinance their debt obligations will
therefore remain a major challenge for many governments. Most OECD debt managers
will continue rebalancing their portfolios by issuing more long-term bonds and
cutting back on issuance of short-term bills.
Many countries are expected to see a relatively high level of longer-term
redemptions in 2013. For the OECD area as a whole, governments will need to
refinance around 30% of outstanding long-term debt in the next three years. The
OECD average long-term interest rate is expected to rise to around 4.0% in 2013,
up from 3.8% in 2009.
Fiscal accounts deteriorated sharply in the wake
of the global financial crisis. In fact, the direct fallout of this crisis
explains roughly two-thirds of the rise in the debt ratio among the advanced
economies markets.33 As a result, government debt levels in many OECD countries
increased to close to the historical peak in the 1940s. Figure 1.9 gives the
development of gross public debt since 1880 for selected OECD economies. The
peak of general government debt as a percentage of GDP for these countries is
linked to World War II (1941-45), the latter event taking the GDP
PPP-weighted average debt ratio to around 116% of GDP.34 The fall-out of the
2007-2009 global financial crisis (the most serious financial crisis on record)
has put such pressure on the increase in government debt ratios in the OECD area
that the WW II peak is being nearly scaled.
The Paris-based Organisation for Economic
Cooperation and Development is a think-tank for 34 mainly developed countries.
OECD member countries are: Australia, Austria, Belgium, Canada, Chile, the Czech
Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland,
Ireland, Israel, Italy, Japan, Korea, Luxembourg, Mexico, the Netherlands, New
Zealand, Norway, Poland, Portugal, the Slovak Republic, Slovenia, Spain, Sweden,
Switzerland, Turkey, the United Kingdom and the United States. The European
Commission takes part in the work of the OECD.
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