The International Monetary Fund (IMF) has warned that steadily rising government borrowing costs could strain public finances around the world and complicate efforts to bring debt levels back under control. The caution appears in the fund's latest Fiscal Monitor analysis, which examines how higher sovereign yields are reshaping fiscal policy choices across advanced and developing economies. The Fiscal Monitor is the fund's standing assessment of public finances and a reference point for debt sustainability worldwide.

Between February and September, the average 10-year government bond yield across the Group of Seven (G7) rose by more than one percentage point, reaching its highest level in nearly two decades. At the same time, global public debt is projected to exceed 100% of global GDP by 2030 — a threshold last reached immediately after World War II. Yields on major government bonds also serve as reference rates for much of the financial system, so their level matters well beyond public budgets.

What Is Driving Yields Higher

A sovereign yield is, in effect, the price of government borrowing: the more return investors require to hold a country's debt, the costlier each new issuance becomes. The IMF identifies several forces behind the rise in yields, including persistent inflation, higher oil prices, stronger investment demand, and expected growth linked to artificial intelligence. Even so, fiscal fundamentals remain central to the outlook. Elevated government debt, expanding spending needs, and expectations of substantial bond issuance are pushing up the returns investors demand. Higher yields in major economies can also spread across borders, lifting financing costs elsewhere.

Budgets Under Growing Strain

The pressure is already visible in government budgets. The effective average interest cost of government financing is projected to increase from 2.3% in 2021 to 3.7% by 2031.

The United States faces a particularly heavy burden. Interest payments by the US government are projected to rise from approximately 2.8% of GDP before the pandemic to 5.7% in 2031 — a level that would roughly match projected Social Security spending, the country's largest entitlement program.

Low-income countries face even tighter constraints. Interest payments currently consume more than 15% of their total fiscal revenues, compared with an average of approximately 9% between 2011 and 2019. These outlays leave governments with fewer resources for infrastructure, social programs, and economic support, while also restricting their ability to respond to downturns or to meet growing defense and energy security demands.

Rising bond yields are adding pressure on public finances already strained by debt approaching its highest since World War II. Putting fiscal policy on a credible path now can help contain borrowing costs and limit risks. Read more in the latest Fiscal Monitor blog:… pic.twitter.com/xDo0sx0Jyo

— IMF (@IMFNews) October 17, 2026 (via X)

How Higher Y Complicate Debt Stabilization

According to the IMF, stabilizing debt requires stronger fiscal balances whenever borrowing costs exceed expected nominal economic growth. Under those conditions, governments must generate larger primary surpluses or reduce primary deficits to keep debt ratios from climbing.

Yet the global primary deficit is projected to reach 3.3% of GDP in 2026. Stabilizing the global debt-to-GDP ratio this year would require narrowing that deficit to approximately 2.6%, and further adjustment of a similar magnitude would be needed in subsequent years as debt continues to rise.

Debt maturity structures also matter. The fund noted that governments refinancing more of their debt over shorter periods experience a faster transmission of higher policy rates into their borrowing costs, creating a feedback loop between monetary policy, fiscal pressure, and market interest rates. Because interest on existing bonds resets only as bonds mature, average borrowing costs drift higher gradually even after policy rates move. The projections underline how quickly higher financing costs can compound across public budgets.

The IMF also cautioned that favorable financing conditions for emerging markets may not last. A shift in investor risk appetite could widen sovereign spreads — the premium investors demand over benchmark rates to hold a country's debt — and restrict access to international funding.

Recommended Path Forward

The report calls for credible medium-term fiscal plans, stronger debt management, improved tax systems, and more efficient public spending. Its central warning is clear: delaying fiscal adjustment could drive borrowing costs higher and force governments into more painful measures later.

The IMF updates the Fiscal Monitor twice a year, so subsequent editions will refresh these projections and show how closely fiscal outcomes track the path it describes.

The full analysis is available in the IMF's Fiscal Monitor blog post, Rising Sovereign Yields Raise the Fiscal Stakes.