Fiscal sustainability under scrutiny as refinancing risk mounts

Global inflationary pressures stemming from supply shocks that followed Russia’s war of aggression in Ukraine have focused minds on monetary policy, theatening to weaken the resilience of the economic recovery from the COVID-19 pandemic.

Governments face a sudden jump in borrowing costs. Following a prolonged period of low interest rates and active central bank asset purchasing programmes, US two-year benchmark government bond yields leapt from 0.7% to 4.3% in the 12 months to December 2022; in Germany, they rose from -0.7% to 2.4%.

Mounting refinancing risk is putting government budgets and debt sustainability under scrutiny, while emerging market economies' access to the capital markets face bigger hurdles – putting them at greater risk.

> Explore the OECD Sovereign Borrowing Outlook 2023

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