Interest expenses are putting increasing pressure on the budgets of local and regional governments (LRGs) worldwide. This pressure will only ease if rates decline faster than we expect, or if LRGs reduce their deficits. For now, the pressure seems manageable for most LRG sectors worldwide. However, expanding deficits or higher-for-longer rates would quickly ramp the pressure up even further and limit budgetary flexibility, especially where debt stocks are high or debt repricing is fast due to a reliance on variable-rate or relatively short-term debt.