Germany's debt agency expects new record for borrowing in 2027

Germany's finance agency said on Thursday it expects federal borrowing to hit a ‌record €525.5 billion ($598 billion) in 2026 and to rise further next year, driven largely by rising refinancing needs and growing requirements for special funds. "That figure will also grow in 2027," Federal Finance Agency executive director Tammo Diemer told reporters in ‌Frankfurt. The agency responsible for Germany's debt said it plans to publish its annual forecast for its 2027 ‌issuance in December.

A key factor is the increasing volume of maturing debt that needs to be repaid and refinanced, the agency said. Germany must repay €309 billion of existing debt to investors this year. The federal budget's net borrowing is also increasing slightly, while the financing needs ⁠linked ​to Germany's special funds are also ⁠on the rise, Diemer said.

Taken together, those factors point to a higher overall funding requirement, said Diemer, adding: "The federal government is in ⁠an expansionary phase of fiscal policy." Investors understand that this financial leeway is being used for increased investment in infrastructure and defence, which ​are vital for Germany's future viability, he added.

"These are understandable and important objectives that are crucial ⁠for our future viability and ultimately strengthen the federal government's creditworthiness," added Diemer. Germany remains one of the world's most sought-after sovereign borrowers due to ⁠its ​top-tier AAA credit rating, which was reaffirmed this month by the European rating agency Scope.

That is despite a selloff in government debt triggered by the Iran war which has driven yields sharply higher in recent weeks. ⁠The yield on Germany's benchmark 10-year Bund briefly rose above 3.5% this month, its highest level in 17 ⁠years. One reason is the ⁠growing risk of inflation resulting from the Middle East conflict, which has prompted the European Central Bank to raise its key interest rate twice this year, pushing up government ‌borrowing costs.

($1 = 0.8793 ‌euros)