Dive Brief:
- Governments around the world have made progress in controlling age-related spending since 2013, when S&P Global last analyzed the implications of aging populations on sovereign credit ratings, the company reports in "Global Aging 2016: 58 Shades Of Gray."
- Despite that progress, however, efforts to contain these costs are hampered by fragile economic recoveries in many countries, particularly in Europe, the analysis finds.
- "We think further policy actions will likely be necessary, particularly to curb the rising costs of health and long-term care," the researchers write.
Dive Insight:
While S&P Global's long-term debt projections for governments came out lower than they did in 2013, the analysts suggest most of the 58 countries studied will see a demographically driven hit to their finances if they don't make sufficient policy changes to contain costs and boost growth.
They conclude that without further policy action, the median net general government debt in advanced economies will go up to 134% of GDP by 2050, and go up to 136% for emerging markets.
Under that hypothetical scenario, by 2050 more than a quarter of the 58 governments analyzed would receive credit metrics currently associated with speculative-grade sovereign credit ratings, they add.
"The financial burden on most sovereigns will gradually increase, leading to deteriorating fiscal indicators as of the mid-2020s," they write. However, they concede there would be significant differences among countries and that they don't expect governments and creditors to allow debt to go out of control. The scenario serves to illustrate the scale of the adjustments that will be required to manage costs, they say.
Currently, the countries studied spend the most overall on pensions for aging populations, followed by healthcare and long-term care. However, "Healthcare costs will likely be the biggest driver of higher age-related spending in coming decades," the study finds.