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TheStreet Open House

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

Although aging-related costs are often viewed as a problem faced primarily by wealthier sovereigns, Standard & Poor's analysis suggests that the problem may be almost as pressing for emerging market sovereigns.

For the 2013 Report, supporting data is available interactively on the Web and via an iPad app. Comparisons with various groups – such as emerging economies and AAA-rated countries – are also available. Links can be found at www.standardandpoors.com/GlobalAging.  Users may also interact with the supporting data on iPad by downloading the free CreditMatters app available by searching "S&P Ratings" at the Apple App Store or by visiting www.standardandpoors.com/mobile.

The 2013 Report includes simulations of hypothetical long-term sovereign ratings credit metrics under various scenarios:

  • The "No Policy Change" scenario, in which nations take no measures to plan for aging populations
  • The "Balanced-Budget" scenario, in which budgetary adjustments result in a balanced budget in 2016 for all sovereigns
  • The "No Aging" scenario, in which government legislation fully contains future increases in age-related spending over the projection period
  • The "Lower Interest Rate" scenario, in which a 2% interest rate prevails over the study period rather than 3% in the no-policy-change scenario
  • The "Higher GDP Growth" scenario, in which GDP growth is increased by 1% across the projection period.

To demonstrate the scale of the challenge, by 2050 under a "No-Policy-Change" scenario nearly 60% of the sovereigns analyzed in the 2013 Report would have credit metrics that Standard & Poor's currently associates with speculative-grade sovereign credit ratings, against 20% currently--even though their finances have improved since the 2010 report.

As in previous reports, the 2013 Report also notes that Standard & Poor's does not predict the "No-Policy-Change" scenario will actually unfold, given the low likelihood that governments would allow their debt burdens to increase without enacting policy reforms. In fact, the 2013 Report shows some improvement to date from reform efforts enacted since 2010.

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