U.S. Debt Could Reach 160% of GDP by 2036, Scope Warns
The United States faces a growing fiscal challenge as Scope Ratings warns that the country's general government debt could approach 160% of GDP by 2036 if current trends continue.
Scope kept the United States at an AA- sovereign credit rating with a stable outlook, but its assessment highlighted rising interest costs, persistent budget deficits and increasing sensitivity to financial-market conditions. The ratings agency said the current fiscal trajectory would remain unfavorable without materially stronger economic growth or significant measures to increase revenue or reduce spending.
The warning comes as U.S. Treasury yields have climbed sharply, making the cost of refinancing existing government debt increasingly important for Washington. For global investors, the issue extends well beyond U.S. government finances because Treasury yields influence borrowing costs, equity valuations, currencies and capital flows worldwide.
Why Scope is warning about U.S. debt
The central problem is the combination of large fiscal deficits and rising interest expenses.
A government runs a primary deficit when it spends more than it collects in revenue before accounting for interest payments on existing debt. Scope expects the U.S. primary deficit to remain around 3.5% of GDP, meaning the government would continue adding to its debt even before the cost of servicing that debt is included.
As the debt stock becomes larger, interest payments consume a greater share of government resources. Higher market yields can then make the problem worse because newly issued debt and maturing debt have to be refinanced at more expensive rates.
This creates a feedback risk: larger debt can mean higher interest costs, which can contribute to larger deficits and, in turn, more borrowing.
Scope therefore describes the trajectory as increasingly exposed to changes in investor sentiment and financing conditions.
Scope's 160% projection is different from the CBO's forecast
The 160% figure needs some context.
Scope is referring to general government debt, a broader measure than the federal debt held by the public commonly used in U.S. budget reporting.
The Congressional Budget Office's February 2026 baseline projected U.S. federal debt held by the public to rise from 101% of GDP in 2026 to 120% in 2036. CBO also projected the federal deficit to increase from $1.9 trillion in 2026 to $3.1 trillion in 2036.
The two figures should therefore not be treated as conflicting forecasts of exactly the same debt measure.
The broader message, however, is similar: U.S. debt is expected to keep rising relative to the size of the economy unless fiscal policy or economic growth changes the trajectory.
The International Monetary Fund also projected U.S. general government debt to reach 140% of GDP by 2031 under current policies and warned that rising public debt and short-term debt represent growing stability risks.
Why interest rates are becoming critical
The biggest concern for markets is not simply the size of the debt. It is the cost of carrying it.
CBO expects net interest payments to rise from 3.3% of GDP in 2026 to 4.6% by 2036. That increase accounts for much of the projected rise in the overall federal deficit.
Higher Treasury yields can accelerate that pressure.
When the U.S. government issues new bonds or refinances maturing securities, it has to pay prevailing market rates. If yields remain elevated for an extended period, the average interest rate paid across the debt stock gradually rises.
This is why investors are watching the long end of the Treasury market closely.
A higher 10-year Treasury yield also affects private borrowing costs because government bonds are a benchmark for pricing many mortgages, corporate bonds and other financial assets.
What happens if debt keeps rising?
A rising debt-to-GDP ratio does not automatically mean an immediate financial crisis.
The United States has several advantages that distinguish it from many heavily indebted countries. The dollar remains the world's leading reserve currency, Treasury securities are widely treated as a global safe asset, and the country has deep and liquid capital markets. Scope specifically cited these factors as important credit strengths.
The problem is that these advantages do not eliminate fiscal constraints.
At some point, investors may demand higher yields to hold additional government debt. Even a relatively small increase in borrowing costs can have a large impact when the underlying debt stock is enormous.
Scope therefore sees increasing sensitivity to market sentiment as an important medium-term vulnerability.
The debt ceiling adds another risk
Scope also highlighted the recurring U.S. debt-ceiling confrontation.
The agency expects the current $41.1 trillion debt ceiling to be reached by early 2027. It assumes policymakers will eventually raise or suspend the limit, but warned that political divisions could produce another prolonged standoff.
The debt ceiling does not create the underlying fiscal deficit. Instead, it restricts the Treasury's ability to borrow to meet obligations that Congress has already authorized.
Repeated confrontations can nevertheless create market uncertainty.
For investors, the concern is less about whether the United States can technically finance its obligations and more about whether political disputes could periodically disrupt Treasury markets and investor confidence.
Why rising U.S. debt matters for global markets
The U.S. Treasury market is at the center of the global financial system.
Higher Treasury yields can make dollar assets more attractive relative to emerging-market securities. That can influence foreign investment flows into countries such as India.
For Indian investors, a stronger dollar combined with higher U.S. yields can put pressure on the rupee and increase volatility in domestic equities and bonds.
Higher global yields can also raise the required return investors demand from riskier assets. This can weigh particularly heavily on high-valuation growth stocks because their valuations depend more heavily on expected earnings far into the future.
The effect is not necessarily negative across the board. Banks and financial companies can respond differently depending on their funding structures and interest-rate environment. Bond investors may also benefit from higher yields if they are buying securities at attractive prices.
The important point is that U.S. fiscal policy can influence asset prices far outside the United States.
Could economic growth solve the problem?
Scope's warning does not assume that the debt outcome is predetermined.
The agency specifically said materially stronger economic growth could improve debt dynamics. Faster growth expands the economy's tax base and makes existing debt smaller relative to GDP.
Artificial intelligence and productivity growth are among the potential sources of stronger U.S. economic expansion.
But relying exclusively on growth carries risks. CBO's projections show real GDP growth averaging about 1.8% annually from 2027 through 2036, while potential growth also slows later in the period as demographic pressures weigh on the labor force.
That means policymakers may ultimately need a combination of economic growth and fiscal measures rather than expecting growth alone to solve the problem.
What investors should watch next
The U.S. fiscal outlook will increasingly depend on several market and policy indicators:
10-year Treasury yield: A sustained rise would increase refinancing pressure over time.
U.S. inflation: Persistent inflation could keep long-term borrowing costs elevated.
Federal budget deficits: The size of annual deficits will determine how quickly debt accumulates.
Net interest costs: This will show how much fiscal capacity is being absorbed by debt servicing.
Debt-ceiling negotiations: Political disputes could temporarily increase market volatility.
Dollar strength: A stronger dollar can affect emerging-market currencies and capital flows.
Federal Reserve policy: Changes in short-term rates can influence the broader Treasury yield curve.
Economic growth: Faster productivity and GDP growth could improve the debt-to-GDP ratio.
What it means for Indian investors
Indian investors do not need to treat the Scope warning as an immediate crisis signal. The United States still has exceptional financing advantages and remains the world's largest nominal economy.
However, the direction of U.S. debt and Treasury yields is increasingly important for Indian markets.
If long-term U.S. yields remain high, foreign investors may become more selective toward emerging markets. A weaker rupee can increase India's imported inflation risks, particularly when crude oil prices are also elevated.
Indian investors should therefore track U.S. Treasury yields alongside crude oil, the dollar index, foreign portfolio flows and domestic bond yields.
The interaction between these variables can matter more for markets than any single headline about U.S. debt.
Conclusion
Scope Ratings has kept the United States at AA- with a stable outlook, but its warning about general government debt approaching 160% of GDP by 2036 highlights a growing long-term fiscal challenge.
The key issue is not simply the headline debt number. Rising interest costs can gradually reduce the government's fiscal flexibility and make the U.S. more sensitive to movements in Treasury yields and investor confidence.
For global investors, the next signals to watch are long-term Treasury yields, federal deficits, interest expenses, debt-ceiling negotiations and the strength of U.S. economic growth. For Indian markets, those developments could influence the rupee, foreign flows, bond yields and equity valuations.
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This article is for informational and educational purposes only and should not be considered investment advice.