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Age-related spending may knock countries’ credit ratings to junk

Countries' public finances will slump if governments do not curb the rising costs of caring for their expanding aging populations, Standard & Poor's (S&P) said on Thursday.

The world's population is aging at an unprecedented rate, as people live longer and have fewer children. This may decrease the working population and hit tax revenue in countries, as well as increase demands on health and welfare systems. In turn, this can divert funding more from other areas of the government spending, such as infrastructure or education.

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"We believe that nearly all countries will face a steep, demographically driven deterioration in public finances in the absence of further policy actions, particularly to curb rising costs of health and long-term care combined with policies that boost growth," the ratings agency said in a report.

By 2050, 1.5 billion people are forecast to be aged 65 or older, representing 16 percent of the world's population, according to the U.S. National Institute on Aging. That is up from an estimated 524 million people, or 8 percent of the population, in 2010.

S&P studied 58 countries and found their credit ratings would likely fall until 2050 if government did not cut budget deficits or curb public spending on health and pensions.

It warned that if countries took no action, more than 25 percent would be downgraded to speculative-grade or "junk" by 2050, suggesting a heightened risk of defaulting on their debts — a marked increase from 202 estimates, where less than 10 percent are forecast to be junk-rated.

Marko Mršnik, a sovereign analyst at S&P Global Ratings, said governments should act early to "rationalize" social security systems, in order to spread the impact of unpopular cuts.

"Sovereigns nevertheless face a difficult balancing act between curbing public spending and ensuring the adequacy of benefits to prevent otherwise growing risks of poverty and inequality," S&P said.

HSBC said on Wednesday that China, South Korea, Russia and Poland had rapidly aging populations that might hamper economic growth — highlighting that not only the richest economies face challenging demographics.

The bank warned poorer countries might struggle with aging populations in comparison to those such as Japan and Germany that aged after the countries were highly developed.

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