Asia-Pacific sovereign borrowing is accelerating. S&P Global Ratings expects the region's long-term commercial borrowing to reach US$4.2 trillion this year, a meaningful increase in the US$3.9 trillion of such debt raised in 2024 (our estimate). Chinese issuances account for much of the increase.

The Japanese government will likely borrow less than in fiscal 2024 (ending March 31, 2025), as its budget deficit shrinks. The budget for the 2025 fiscal year projects a significant increase in revenue. This would more than offset budgeted spending increases.

We project that most sovereigns in Asia-Pacific will borrow more this year. China could see borrowing increasing by about US$375 billion compared with 2024, the largest upsizing in the region. Central government borrowings in Australia, India and Indonesia are also likely to increase meaningfully.

We project Asia-Pacific government commercial debt to rise by US$1.6 trillion in 2025, bringing the year-end total to US$22.5 trillion. The stock of central government commercial debt in the region dipped in 2022 but has rebounded since last year.

Although net borrowing remained sizable throughout this period, the significant depreciations of regional currencies--especially the Japanese yen and Chinese renminbi vis-a-vis the U.S. dollar --held down the value of government debt measured in U.S. dollars.

Chinese Issuance Lifts Overall Asia-Pacific Borrowing

We expect a large increase in Chinese central government issuance this year due to stepped-up budgetary support for the economy. We project that Chinese net borrowing will increase more than 50% in 2025, reflecting a substantial increase in government spending. This will bring long-term commercial borrowing to US$2.1 trillion, up from US$1.7 trillion in 2024. We expect that the bulk of this increase will be funded in the Chinese domestic bond market.

China usually keeps its official annual state budget deficit within 3% of GDP. In recent years, it had relied on off-budget special purpose bonds issued by local governments to fund investment spending and tax cuts. It had also drawn on off-budget funds to plug revenue shortfalls. However, it has annouced that it intends to allow a significant increase in the official budget deficit rate in 2025. It has also indicated that it will increase the issuance of off-budget special central government treasury bonds.

These moves are meant to clearly signal stronger government backing for economic growth. The drag on growth from government efforts to deleverage the real estate sector and local governments continue to weigh on the wider economy. By implementing these measures, the government aims to boost confidence and--eventually--lift economic activity, in our view.

In contrast, government commercial borrowing in Japan will decline in fiscal 2025, in our view. Tax revenue should pick up strongly in the year, more than offseting higher government spending. An economic rebound and steady inflation this year will likely boost tax revenue.

Corporate tax collections from banks will also benefit from their higher interest earnings. At the same time, personal income taxes should increase with the expiry of one-time reductions introduced in 2024. In fiscal 2025, we project Japanese central government long-term commercial borrowing at US$1.2 trillion. This is a decline of US$155 billion from the level in fiscal 2024.

Most other major Asia-Pacific governments will likely borrow more in 2025. However, we project their fiscal deficits to fall as a share of GDP, relative to 2024. Despite external uncertainties and the importance of exports to many economies in the Asia-Pacific, we still forecast mostly healthy growth this year. And inflation expectations are receding further.

Chart 1

By our estimates, Asia-Pacific sovereigns will use nearly 65% (or US$2.7 trillion) of their gross long-term commercial borrowings in 2025 to refinance maturing long-term debt (with an original maturity of above one year). Net long-term commercial borrowings come close to US$1.5 trillion this year (see tables 1-3 and chart 1).

Likely issuance this year will raise the Asia-Pacific sovereign commercial debt stock to an equivalent of US$22.5 trillion by the end of 2025, up by US$1.6 trillion from 2024. If we include bilateral and multilateral debt, the total stock in 2025 will reach US$23 trillion, US$3 trillion above that in 2023. The share of noncommercial official debt (bilateral and multilateral) in total long-term sovereign debt will likely be about 2.1%.

Asia-Pacific central governments that we rate as investment grade owe almost all the sovereign commercial debt in the region. That's partly because sovereigns with the biggest economies are rated investment grade.

The two largest speculative-grade sovereigns by economic size in the region--Bangladesh and Vietnam--account for just 0.4% and 0.5% of total Asia-Pacific central government commercial debt, respectively. Pakistan, the next largest economy, accounts for 1%. The share of debt in the rating category of 'BB' or below accounts for only 2.3% of total commercial debt in 2025.

Chart 2

At the end of this year, we project the share of commercial sovereign debt rated 'AAA' at 7.1% of total commercial debt. This is a slight decrease from the 7.3% share in 2024. The decline in share reflects the slower increase in debt levels at governments with the highest credit ratings (see chart 2).

Table 1

Most Asia-Pacific Governments Face Higher Borrowing Costs

Japan's debt-rollover ratio (including short-term debt) could increase to 57.3% of GDP in 2025, from 55.8% a year earlier (see chart 3). This ratio could rise further. One reason is a likely shift in the government's issuances away from long-dated bonds.

Chart 3

In fiscal 2025, the Ministry of Finance expects the weighted average maturity of market issuances of Japanese government bonds to decline to eight years and one month, from eight years and five months in fiscal 2024. The government announced that it will issue less debt in the form of 30- and 40-year bonds in fiscal 2025, compared with the year earlier.

We believe that the government's reduction of longer-term issuances reflects the costlier funding conditions in the country. Japanese interest rates have increased across the yield curve in the past year. At the end of February 2025, the yield on 40-year Japanese government bonds was 2.7%. A year earlier, it was below 2%. This means that interest payments will increasingly weigh on the Japanese government budget. The government's reduced issuances of long-dated bonds could be to control the increase of interest payments on the budget.

Some lower-rated governments that are facing adverse political or economic situations may also face higher funding costs. Interest rates in 2025 are likely to be higher than in 2024 in Bangladesh. The relatively light Bangladeshi debt burden, coupled with a large share of long-dated multilateral debt, means that the interest rate changes will likely have little effect on its rollover ratio.

For Pakistan, where debt levels are higher at more than 70% of GDP, the impact is larger. Nevertheless, support from multilateral financial institutions and a relatively low share of short-term debt also limit the increase in the rollover ratio.

Most other Asia-Pacific governments could see stable or lower interest rates this year. With central banks in advanced economies beginning to ease monetary policy, interest rates have generally fallen in the region. This has allowed governments to fund themselves at lower cost.

Table 2

Table 3

Table 4

Methodological Note

The debt-rollover ratios for infrequent issuers, such as the Cook Islands, with small but lumpy debt obligations, can be very low if they have little or no debt maturing in the year, or if those issuers do not have much short-term debt. The rollover ratios of sovereigns that have a higher proportion of official debt tend to be lower, because official debt typically has longer maturities than commercial debt.

These projections only account for the 21 Asia-Pacific sovereigns rated by S&P Global Ratings. Our estimates focus on debt that is issued by a central government (or a government that we rate using our sovereign rating methodology) in its own name, and in most cases exclude local government and social security debt as well as debt issued by other public bodies and government-guaranteed obligations. In terms of commercial debt instruments, our estimates for long-term borrowing include bonds with maturities of more than one year issued either on publicly listed markets or sold as private placements, as well as commercial bank loans.

In addition to commercial debt, some of the estimates we use in this study include official bilateral and multilateral debt. We do not include government debt issued by central banks for monetary policy purposes. All reported forecast figures are our own estimates, and do not necessarily reflect the issuers' projections. Our estimates are based on our expectations regarding central government deficits, our assessment of governments' potential extra-budgetary funding needs, and our estimates of debt maturities. Estimates that we express in dollars are subject to exchange rate variations.

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