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Public budgets and markets stress together

Part I describes systems and their couplings. It ranks no country or operator and assesses no authority.

5 min read2 figures2 tables7 notesNR-STRATEGIC-FISCAL-GLOBAL-2026-BASELINE

Contents
  1. ·Edition home
  2. ·Executive summary
  3. 1Public budgets and markets stress together
    1. 1.1 The questions this part answers
    2. 1.2 The argument
    3. 1.3 Twenty couplings between five systems
    4. 1.4 Reinforcing loops
  4. 2Key findings
  5. 3Systems and sectors at baseline
  6. 4Risks and capability
  7. 5Energy shock, sovereign repricing and nonbank selling
  8. 6Readings from the other desks
  9. 7The 2027 agenda
  10. 8Systems in depth
  11. AMethodology
  12. BData appendix
  13. CReferences and record
  14. ·Complete edition, for print

1.1The questions this part answers

Key questions

  • Where is fiscal and financial resilience risk concentrated?
  • Which couplings carry fiscal and financial resilience shocks into other systems?
  • Which fiscal and financial resilience capabilities hold under compound stress?
  • What must 2027 evidence measure first?

In this part

  • Narrative
  • Headline finding
  • Lead figure
  • Five mechanism chapters
  • Twelve-domain reading
  • Sector screens
  • Dependency matrix
  • Risk objects
  • Capability ladder
  • Scenario
  • Three lenses
  • Portfolio

1.2The argument

Public finances are usually reported by country: a deficit, a debt ratio, a rating. The 2025 and 2026 evidence reads them as one connected system. Budgets depend on bond markets, bond markets depend on funds and banks, and funds and banks depend on the budgets that issue the bonds56.

The causes repeat. Debt rose in the largest economies1. Interest costs rose as a share of revenue in developing countries2. An energy shock in 2026 lifted inflation and yields together46. Deficits are projected to stay at or above 2025 levels in most jurisdictions in 20274.

The holder base is different from a decade ago. Nonbanks held 53% of advanced-economy sovereign debt in 2025, central banks held less, and banks held about 20%5. Repo lending to hedge funds often carries no haircut5. Stress can pass quickly between banks and nonbanks and across borders.

The edition therefore asks the same four questions of every event: what was the common cause, how did it spread, what was shared, and what threshold was crossed. It rates no country and forecasts no default.

Figure 1.1How large are the published debt-service measures? USD billion

The two bars use different periods and coverage, so they show scale only and are not added. One is a single year of interest, the other three years of principal and interest net of new financing23.

ItemBar, scaled to the largest valueValue
Net interest, developing-country public debt, 2025995
LMIC net payments above new financing, 2022 to 2024741

Source: as cited in the note to this figure. Year 2025.

Figure ID FIG-STRATEGIC-FISCAL-GLOBAL-2026-BASELINE-01-003

995USD billion

net interest, developing countries, 20252

8.1% of revenue

median net interest burden, 20252

741USD billion

LMIC net payments, 2022 to 20243

8.9USD trillion

LMIC external debt stock, 20243

1.3Twenty couplings between five systems

The fiscal and financial resilience-centred matrix types the twenty couplings between the five core systems, read for their fiscal and financial resilience content. Strengths are Nexus estimates (ESTIMATED) from the cited evidence and analogue events; they set the graph that 2027 evidence will test.

Figure 1.2Couplings between the five systems

Each line is one coupling from one system to another, drawn by the strength the edition assigns. Strengths are Nexus estimates from the cited evidence and analogue events.

  • Strong
  • Moderate
  • Weak

Source: this edition’s coupling matrix (Table 1.1); status Estimated.

Table 1.1Coupling matrix: from the row system to the column system
From, toWATENEFOOHLTBIO
WAT Water·STRONG
utility finance · power costs		MODERATE
irrigation finance		STRONG
safe supply · public health cost		WEAK
flows
ENE EnergySTRONG
pumping costs · subsidies · utility finance		·STRONG
fertiliser and fuel prices		STRONG
inflation · budget pressure on health		WEAK
land use
FOO FoodWEAK
withdrawals		WEAK
bioenergy		·MODERATE
nutrition cost		WEAK
land conversion
HLT HealthWEAK
workforce		WEAK
workforce		WEAK
labour		·WEAK
residues
BIO BiodiversityMODERATE
natural infrastructure		WEAK
hydrology		WEAK
pollination		WEAK
zoonoses		·
Strength: strong, moderate or weak; a Nexus estimate (status Estimated) from cited evidence and analogue events. The scale is defined in Annex A.

Transmission paths

  1. 01

    ENE → FIN → HLT

    An energy shock lifts inflation and yields and squeezes health budgets.

    Reported 2026 energy shock42

  2. 02

    FIN → FIN

    A sovereign repricing meets leveraged nonbank selling in funding markets.

    Reported BIS 20265

  3. 03

    DAT → FIN

    Hidden debt revealed to markets widens spreads.

    Reported GEP 202612

  4. 04

    FIN → DEV

    Rising interest crowds out spending in developing countries.

    Reported UNCTAD 20262

  5. 05

    AIC → FIN

    A fall in elevated equity valuations reaches households and budgets.

    Reported BIS 20264

1.4Reinforcing loops

A shock entering either system of a loop can return amplified through the other.

Table 1.2Pairs of systems where both directions are rated strong
LoopFirst directionSecond direction
WAT and ENEWater to energy: utility finance · power costsEnergy to water: pumping costs · subsidies · utility finance
A causal-loop reading of the matrix (Sterman, Business Dynamics, 2000): structural, from estimated strengths, not a measured feedback.

Notes

Numbers are the edition’s reference numbers, so a note reads the same in every chapter. The full list, with every source and its licence, is in Annex C. Annex C, references

  1. 5BIS (ed.), Annual Economic Report 2026, Chapter II: High public debt and shifting financial markets, challenges for central banks (chapter page read to character 100,000 of 120,069). Bank for International Settlements, Basel, 28 June 2026. Observation year 2025. Accessed 2026-11-03.back
  2. 6IMF (ed.), Global Financial Stability Report, April 2026 (key messages page of 14 April 2026). International Monetary Fund, Washington. Observation year 2026. Accessed 2026-11-03.back
  3. 1IMF (ed.), Fiscal Monitor, April 2026 (publication page; global public debt just under 94% of GDP in 2025 and 100% by 2029; key messages; estimates use information to 1 April 2026). International Monetary Fund, Washington. Observation year 2025. Accessed 2026-11-03.back
  4. 2UNCTAD (ed.), A World of Debt 2026: Rising debt costs and stalling development (publication page; about USD 111 trillion of global public debt in 2025; about USD 35 trillion in developing countries; net interest about USD 995 billion; median 8.1% of revenue; 51 countries and 3.7 billion people). United Nations Conference on Trade and Development, Geneva. Observation year 2025. Accessed 2026-11-03.back
  5. 4BIS (ed.), Annual Economic Report 2026, Chapter I: Progress and peril (chapter page; fiscal positions, energy shock, equity valuations). Bank for International Settlements, Basel, 28 June 2026. Observation year 2026. Accessed 2026-11-03.back
  6. 3World Bank (ed.), International Debt Report 2025 (data blog of 3 December 2025; external debt USD 8.9 trillion in 2024; USD 741 billion net payments over 2022 to 2024). World Bank, Washington. Observation year 2024. Accessed 2026-11-03.back
  7. 12World Bank (ed.), Global Economic Prospects, June 2026 (publication page; growth 2.5% in 2026; debt and sovereign spreads in developing economies). World Bank, Washington. Observation year 2026. Accessed 2026-11-03.back

Cite this chapter

Valadbaygi, S. (Ed.). (2026). Chapter 1: Public budgets and markets stress together. In Strategic Systems Report 2026: Sovereign, Fiscal and Financial Resilience (Baseline Edition 2026, Report No. NR-STRATEGIC-FISCAL-GLOBAL-2026-BASELINE) [Draft under review]. The Global Centre for Risk and Innovation (GCRI).

Every citation form of the whole report, BibTeX and RIS included, is on the edition home. Cite this report

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