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The rise in global interest rates is projected to raise governments’ debt service costs to US$2.3 trillion this year, Fitch Ratings says.

“This represents a steep rise in interest spending since 2020,” Fitch said in a report, with borrowing costs rising 47% in developed markets and 40% in emerging markets.

“The trend reflects an end to the era of low inflation and, at least for developed markets, a period of exceptionally low interest rates.”

Since the global financial crisis, total annual interest payments in developed markets have hovered between US$900 billion and US$1 trillion, despite rising debt-to-GDP ratios, as rates remained low, Fitch noted.

Now, the recent sharp pivot away from low rates is hitting developed markets particularly hard.

“We expect the increase in interest rates associated with the rise in global inflationary pressure in 2022 to affect most sovereigns around the world,” it said, noting that developed markets are facing a larger rise in borrowing costs and that rates are¬†expected to rise further in the second half.

Fitch said it expects emerging market central banks to keep rates on hold in the second half.

Against that backdrop, the rating agency noted that its sovereign rating outlooks tend to be more favourable for emerging market sovereigns than for developed markets, in part because developed markets are “facing relatively greater interest-rate stress.”