Global Borrowing Costs Surge as AI Boom Fueled by Debt

The global economy is facing significant challenges due to rising long-term government borrowing costs. In major economies such as the US, UK, Germany, and Japan, yields on long-dated debt have increased sharply in recent months. For example, the 30-year UK gilt yield has reached its highest level since 1998 at 5.82%, while Germany's 10-year Bund has risen to 3.22%, a level last seen in 2011.

The AI sector is also experiencing a boom, with major players such as Microsoft, Amazon, Alphabet, Meta, and Oracle guiding towards combined capital expenditure of $635-690 billion in 2026, roughly double 2024 levels. This has led to concerns about the financial sustainability of these companies and their reliance on debt financing.

Pakistan is not immune to these global trends and will likely feel the effects of rising borrowing costs. The country's next Eurobond issuance may become more expensive due to the higher global 'risk-free' rate, which structurally raises Pakistan's own cost of borrowing. Additionally, a weaker rupee and imported inflation are concerns for an economy that imports most of its energy.