The ACT is facing the highest borrowing costs in more than a decade prompting an independent to warn planned budget savings could already be wiped out.
Australian 10-year bond yields have traded above 5.2 per cent in the past week, meaning ACT government bonds are likely to be sitting slightly higher.
Yerrabi independent Leanne Castley said the higher costs were outside the government's control but the ACT government needed a contingency plan.
"With another $13 billion in debt to be issued over the next few years, we can't afford to be borrowing any more," Ms Castley said.
"That means higher interest costs will have to be managed by deferring more infrastructure projects, hiking taxes, or cutting spending. There's no painless options for managing this."
An ACT government spokesman said most of the territory's existing debt had been issued at fixed interest rates and would not be affected by rate movements.
"Future borrowing costs will depend on prevailing market interest rates, maturity terms, investor demand, and market conditions at the time debt is issued," the spokesman said.
This year's budget, released in June, showed interest costs on government borrowing could be $4.7 million higher or lower in this financial year if fixed-rate market borrowings were 0.25 percentage points higher or lower.
Over the forward estimates, an increase of 0.25 percentage point increase in borrowing costs would cost an extra $60.6 million.
Australian 10-year bonds were trading at a yield of 4.821 per cent on June 8, just before the ACT budget was handed down, and 5.275 per cent on Thursday, a percentage point increase of 0.45.
ACT bond yields are not reported but generally follow Australian government bonds with a small margin.
The budget showed the government plans to take on another $13.1 billion in debt by issuing government bonds over the forward estimates, and the estimated average cost of future ACT bonds was 5.8 per cent, up from 5.6 per cent assumed in the 2025-26 budget review.
Ms Castley said the government needed to be upfront about what the extra borrowing costs would mean for Canberrans, including ACT public servants.
A government spokesman said the ACT was continuing to demonstrate achievements against its fiscal strategy.
"Changes in interest rates impact both borrowing cost and interest revenue assumptions. Other factors such as GST allocations and prevailing economic conditions also affect the territory budget outside of the direct control of government," the spokesman said.
Bond yields around the world have surged to multi-year highs, putting central banks under pressure to increase interest rates.
The Commonwealth Bank on Thursday said Australian 10-year bonds had moved above a 15-year high reached in March and global spending on artificial intelligence, net zero and defence was "intensifying competition for capital".
"Global bond markets remain under significant pressure as the themes and consequences from the new economic and geopolitical era to emerge since COVID become ever clearer," Adam Donaldson, the bank's head of market strategy and rates research, said.
On Wednesday, 10-year US government bonds were yielding 4.8 per cent, close to the highest level since November 2023.
A resurgence in inflation around the world has knocked share markets in the past few weeks, in large part because of the surge in bond yields to multi-year highs, which puts central banks under pressure to raise interest rates.
Treasurer Chris Steel last month said an operating cash surplus posted a year earlier than expected showed the government's plan to fix the budget was working.
"With a better budget position and lower-than-estimated net debt, the government is delivering responsive and responsible fiscal management," Mr Steel said.
