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S&P: Age-Related Spending Reforms Help Restore Sovereign Fiscal Sustainability; Emerging Markets Not Immune To Aging Pressure

NEW YORK, March 20, 2013 /PRNewswire/ -- Standard & Poor's Ratings Services has seen a significant improvement in the budgetary positions of wealthier sovereigns since its 2010 global review of the impact of aging societies on public finances. While the rapid buildup of government debt since 2007-2008--and the resulting large deficits posted by many rated sovereigns--focused attention on age-related spending, a number of sovereigns have overhauled their public pension or health care systems--the two components of age-related programs that typically account for about 40% of government spending, according to a report released today by Standard & Poor's. The report, Global Aging 2013: Rising To The Challenge, updates Standard & Poor's 2010 report, and continues a series begun in 2002 that analyzes the fiscal effects of aging populations.

"If sovereigns overcome their post-crisis economic and budgetary difficulties and successfully adapt their social security systems to demographic challenges, pressures on public finances exerted by aging populations could be gradually contained over the long term--a somewhat surprising conclusion at this stage of the sovereign debt crisis," said Marko Mrsnik, sovereign analyst at Standard & Poor's and author of the report.

Several nations have begun to implement health care and pension measures to accommodate both their aging populations as well as their near-term budgetary pressures, although the impact of these measures in some countries is offset by economic weakness and diminished employment levels. Coupled with higher borrowing costs, such measures can hamper efforts to stabilize debt dynamics. Standard & Poor's believes, however, that if continued, the structural changes and budget consolidation processes many sovereigns have recently implemented should improve their prospects for maintaining sustainable public finances.

"This may be the start of a decades-long period of tension between two different priorities: public spending on pensions and health care for aging populations versus the need to contain sovereign budget deficits and debt," said Mr. Mrsnik.

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