Most of G-7 is spending more on interest than defense, Scope says

Every Group of Seven country apart from Germany and Canada now faces interest costs that exceed defense expenditure, Scope Ratings said.

In a report the credit assessor cited rising bills to service borrowings as it looked at how members of the club of large advanced economies are become more vulnerable to higher bond yields.

“While most sovereigns have so far avoided acute refinancing stress, elevated debt burdens, combined with relatively large primary deficits are increasing the sensitivity of public finances to changes in market funding conditions,” said Eiko Sievert, executive director for Sovereign & Public Sector at Scope.

Sievert’s analysis underscores how, at a time when geopolitical concerns are pushing up defense budgets, market pressure on key borrowers is still overshadowing that impact on the public finances. Every G-7 member bar Germany has debt above 100% of gross domestic product.

Scope reckons that interest costs will amount to 35% of defense spending in Germany this year. That compares to 193% in Italy, 121% in the US, 105% in the UK and 103% in France.

Interest spending as a share of revenues will get close to historic highs in the next five years in the US, China, Japan and France, Sievert predicts.

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