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Let’s talk about debt, government debt
Government debt is rising globally, but it remains sustainable if borrowing is invested in growth-generating areas where returns exceed interest costs; however, high interest rates and rising debt-to-GDP ratios (often exceeding 100%) indicate that debt is outpacing economic growth in many economies.
Should we worry about government debt?
The amount of government debt has been rising worldwide, but should we be concerned?
Well no, as long as government borrowing is invested in areas that generate additional economic growth- meaning that if the interest on the debt is less than the return on that debt (growth), then there can be debt sustainability. In fact, a debt-to-GDP ratio could fall over time even with a persistent deficit. Unfortunately, though, it is inherently difficult to ensure that the return on debt will succeed the cost of servicing it, and even more so when interest rates are high. Indeed, the accumulation of debt over time has meant many economies have seen their national debt-to-GDP ratio top 100%, suggesting debt is rising too fast relative to growth.
Government debt can also become unsustainable if there are structural mismatches between revenues and expenditure. In other words, structural forces in an economy such as an aging population and falling birth rates mean the source of revenues, to service the debt, is diminishing, or, if debt is persistently used to pay for current consumption or to pay the interest on existing debt.
Ultimately, debt mismanagement can leave a government unable to fund public services and limit its ability to respond to shocks. Meanwhile, fears that debt paths are unsustainable can risk becoming a self-fulfilling prophecy – or ‘doom loop’ – by pushing interest rates higher.
What about the government/ household analogy?
There are many reasons why government debt is not, and should not be treated, like household debt. For example, a government with its own currency and central bank can issue money or a government can raise money (taxes) in a way that households cannot. Both of those actions do carry consequences, though. The former risks high inflation and interest rates, while high tax rates drag on growth. There is no magic money tree.
On the other hand, there are many similarities. A government can raise taxes via faster growth like a household can earn more income. It also has constraints just like a household does. A government can only borrow as much as its creditors have faith that the interest can be paid and requires a sufficient pool of creditors to finance the debt. In the UK, large defined benefit (DB) funds have been reliable buyers of government debt, but they won’t be in the future. Indeed, the OBR estimates the current largest holder of UK debt, closed DB funds, will see its share of gilt holdings fall from 27% in 2024 to 5.6% by 2070.
How do we reduce government debt?
Many have argued that instead of focusing on debt-to-GDP, that interest payments as a share of GDP should be the barometer for debt concerns. While that made sense when interest rates were very low, it leaves governments exposed when interest rates rise.
Therefore, the best way to improve debt sustainability is to limit debt issuance that funds current consumption (i.e. ensure spending plans over the long term are realistic) and focus on other non-debt related policies that promote growth, such that tax revenues rise and can be recycled back into public spending. Other helpful strategies include managing interest rates indirectly via avoiding policies that stoke inflation, focussing on supply-side led growth, and instilling confidence that the debt can be repaid over the long run. Once concerns over fiscal credibility and debt sustainability take hold, it can be very difficult to reverse.
1 This report is dated as at 09 October 2025.
2 All market data included in this report are dated as at close 08 October 2025, unless a different date and/or a specific time of day is indicated in the report.
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© Copyright 2025. HSBC Bank plc, ALL RIGHTS RESERVED. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, whether electronic, mechanical, photocopying, recording or otherwise, without the prior written permission of HSBC Bank plc.
1 In South Africa, this publication is distributed through HBEU’s registered branch in South Africa being HSBC Bank plc Johannesburg Branch, Registration Number 2003/004613/10 (Financial Services Provider Number: 43940) of 1 Mutual Place, 107 Rivonia Road, Sandton, 2196.
Americas:
1 In Bermuda, this publication is distributed by HSBC Bank Bermuda Limited of 37 Front Street, Hamilton, Bermuda, which is licensed to conduct Banking and Investment Business by the Bermuda Monetary Authority. 2 In the United States, this document is distributed by HSBC Securities (USA) Inc. ("HSI") to its customers. HSI is a member of the HSBC Group, the NYSE and FINRA.
Asia Pacific:
1 In Australia, this publication has been distributed by HSBC Bank Australia Limited (ABN 48 006434 162, AFSL No. 232595) only, for the general information of its clients. Any reference in this publication to other HSBC Group entities shall not be taken to mean that such entities has a presence in or are licensed in Australia, or that such entities are offering to do business and/or enter into transactions with persons located in Australia. 2 In Bangladesh, this publication is distributed by The Hongkong and Shanghai Banking Corporation Limited (“HBAP”), Bangladesh branch. 3 In mainland China, this publication is distributed by HSBC Bank (China) Company Limited (“HBCN”) to its customers. 4 In Hong Kong, this publication is distributed by HBAP to its customers for general reference and information purposes only. 5 In India, this publication is distributed by HBAP, India branch, to its customers for general reference and information purposes only. 6 In New Zealand, this publication is distributed by HBAP, incorporated in the Hong Kong SAR, acting through its New Zealand branch. 7 In Singapore, this publication is distributed by HBAP, Singapore branch (“HBAP, Singapore branch”) to institutional investors or other persons specified in Sections 274 and 304 of the Securities and Futures Act (Chapter 289) (“SFA”) and accredited investors and other persons in accordance with the conditions specified in Sections 275 and 305 of the SFA. For recipients which are not institutional investors, accredited investors or expert investors as defined in the SFA, this is distributed pursuant to Regulation 32C of the Financial Advisers Regulations (“FAR”). HBAP, Singapore branch, accepts legal responsibility for the contents of the publication pursuant to Regulation 32C(1)(d) of the FAR. This publication is not a prospectus as defined in the SFA. HBAP, Singapore branch, is regulated by the Monetary Authority of Singapore. Recipients should contact an HBAP, Singapore branch representative in respect of any matters arising from or in connection with this publication and refer to the contact details at www.business.hsbc.com.sg. 8 In Sri Lanka, this publication is distributed by HBAP, Sri Lanka branch to its customers. 9 In Malaysia, this publication is distributed by HSBC Bank Malaysia Berhad (“HSBC Malaysia”) to its clients for general reference and information purpose only, and do not constitute any advice, recommendation or offer by HSBC Malaysia. Therefore, this should not be considered as communicating any invitation or inducement to engage in banking or investment activity or any offer to buy or sell any securities or instruments to its clients. Further, HSBC Malaysia does not make any representation or warranty of any nature, and does not accept responsibility or liability for any errors or omissions. HSBC Malaysia shall not be liable for any damage, loss or liability arising out of or in connection with your use of or reliance on this publication.
Europe:
1 For clients of HSBC Continental Europe and HSBC Continental Europe branches, this publication is distributed by HSBC Continental Europe. HSBC Continental Europe is an « Etablissement de crédit et prestataire de services d’investissement» authorized by the « Autorité de Contrôle Prudentiel et de Résolution » (ACPR) and the European Central Bank (ECB). It is regulated by the « Autorité des Marchés Financiers » (AMF), the ACPR and the ECB. 2 In Malta, this publication is distributed by HBEU and is being made accessible to customers of HSBC Bank Malta p.l.c. (“HBMT”). HBMT is registered in Malta with company number C-3177 and is licenced to conduct investment business by the Malta Financial Services Authority. 3 In Switzerland this publication is distributed by HBEU to its customers. 4 In the UK and CIIOM, this publication is distributed by HBEU to its customers and by HSBC Bank UK plc (“HBUK”) to its customers. HBEU is registered in England and Wales (company number: 14259), registered office: 8 Canada Square, London, E14 5HQ, UK. HBUK is registered in England and Wales (company number: 09928412), registered office: 1 Centenary Square, Birmingham B1 1HQ, UK. HBEU is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority (Financial Services Register number: 114216). HBUK is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority (Financial Services Register number: 765112).
Middle East:
1 In Algeria, Bahrain, Kuwait, Qatar, the United Arab Emirates (the “UAE”) and the Dubai International Financial Centre (the “DIFC”), this publication is distributed by HSBC Bank Middle East Limited (“HBME”) to its customers. HBME is registered in the DIFC with company registration number 2199 and its registered office at Level 1, Building No. 8, Gate Village, DIFC, PO Box 66, Dubai, DIFC and is lead regulated by the Dubai Financial Services Authority. HBME operates in Algeria through its Algeria branch at Algeria Business Center, Pins Maritimes, El Mohammadia, 16212 Algiers, Algeria (commercial licence number: 07 C 0974997), which is regulated by the Central Bank of Algeria (Banque d’Algérie) and lead regulated by the DFSA. HBME operates in Bahrain through its branch at PO Box 57, Building 2505, Road 2832, Seef 428, Manama, Kingdom of Bahrain (commercial registration number 330-1), which is regulated by the Central Bank of Bahrain and lead regulated by the DFSA. HBME operates in Kuwait through its branch at Kharafi Tower, Qibla Area, Hamad Al-Saqr Street, PO Box 1683, Safat 13017, Kuwait (Ministry of Commerce and Industry branch licence number SP2005/4), which is regulated by the Central Bank of Kuwait, the Capital Markets Authority for licenced Securities Activities and lead regulated by the DFSA. HBME operates in Qatar through its branch at PO Box 57, Doha, Qatar (trade licence number 6374), which is regulated by the Qatar Central Bank and lead regulated by the DFSA. HBME operates in Dubai through its branch at HSBC Tower, Downtown, PO Box 66, Dubai, UAE (Chamber of Commerce and Industry branch licence number 617987), which is regulated by the Central Bank of the UAE and lead regulated by the DFSA. 2 In Egypt, this publication is distributed by HSBC Bank Egypt SAE to its customers. HSBC Bank SAE is registered in Egypt (commercial registration number: 218992) with registered office: 306 Cornish El Niel, HSBC Bank Egypt SAE, Maadi, Cairo, Egypt. Regulated by the Central Bank of Egypt. 3 In Turkey, this publication is distributed by HSBC Bank A.S. to its customers. HSBC Bank A.S. is registered in Turkey (commercial register number 268376) with registered office: Esentepe Mah. Büyükdere Cad. No. 128, Şişli 34394, Istanbul, Turkey. Regulated by the Banking Regulatory and Supervisory Agency. 4 In Oman, this publication is distributed by HSBC Bank Oman SAOG to its customers. HSBC Bank Oman SAOG is registered in Oman (commercial registration number: 1/08084/9) with registered office: Head Office Building, PO Box 1727, Seeb, PC 111, Sultanate of Oman. Regulated by the Central Bank of Oman and the Capital Market Authority of Oman. 5 In the Kingdom of Saudi Arabia, this publication is distributed by The Saudi British Bank to its customers. The Saudi British Bank is registered in the Kingdom of Saudi Arabia (commercial registration number: 1010025779), registered office: Head Office, PO Box 9084, Riyadh 11413, Kingdom of Saudi Arabia. Regulated by the Saudi Arabian Monetary Authority.
© Copyright 2025. HSBC Bank plc, ALL RIGHTS RESERVED. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, whether electronic, mechanical, photocopying, recording or otherwise, without the prior written permission of HSBC Bank plc.
