The OECD outlooks point to a common story across 2025 to 2027: subnational government balances have already moved into deficit, revenue growth is slowing, and higher interest costs are continuing to pressure budgets.[1][2] The main surveillance task is to track whether slower revenue growth and debt refinancing outpace any easing in rates, especially where debt portfolios are more exposed to market repricing.[3][4]
| Indicator | Why it matters | Policy or surveillance question |
|---|---|---|
| Subnational fiscal balance / deficit trend | OECD says subnational balances turned negative in 2023 and stayed negative in 2024, with deficits at levels not seen for over a decade.[5][6] | Are deficits stabilizing, or are they continuing to widen and be financed by debt?[7] |
| Own-revenue growth | Revenue growth is expected to slow materially, with OECD projections around 0.9% in 2025 and 0.8% in 2026 in one outlook, and around 1.1% in 2025 with median estimates of 1.2% in 2025, 1.7% in 2026, and 2.2% in 2027 in the later outlook.[8][9][10][11] | Is revenue growth staying positive enough to offset spending pressure, or does weaker economic and trade policy uncertainty erode the base further?[12][13][14] |
| Interest expense and debt-service spending | Higher interest rates explain about one-third of the movement in total subnational expenditures, and debt-service spending rose in most countries with available data in both outlooks.[15][16][17][18] | How quickly are higher borrowing costs passing through to current budgets?[19] |
| Debt rollover and refinancing profile | The OECD warns that low-rate long-term debt is being replaced by more expensive loans and higher-yielding bonds, which can push interest costs higher over time.[20][21] | What share of debt is refinancing soon, and how much of it will reprice at current market rates?[22] |
| Debt maturity and indexation mix | The transmission from market rates to interest expense depends on maturity and indexation, and those profiles differ widely across countries and jurisdictions.[23][24][25][26] | Which jurisdictions are most exposed to rapid repricing, and where is portfolio risk concentrated?[27] |
In short, the OECD evidence suggests the 2025 to 2027 outlook is less about one-off deficits and more about timing: when revenue growth slows, when debt rolls over, and how much of the debt stock is exposed to higher rates.[34][35][36]
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