This Terrifying Chart Shows What Rising Health Care Costs Could Do To Sovereign Ratings

If G-20 governments do not change their age-related health care spending, their credit ratings could be at risk within the next decade, claims a recent report by Standard and Poor’s. 

With growing elder population, increased age-related spending, ballooning national debt and no reform, the downgrades would begin as soon as 2015 and “would include a number of highly rated sovereigns.” When the full impact of ageing population kicks in around 2020, “the projected downward transition in sovereign ratings would then dominate along [the] entire rating scale.”

Photo: Sta

While pensions remain a concern, health care spending will be claiming larger percentages of the countries’ GDPs over time. S&P demonstrated three scenarios in the report:

  • ratings if there are no changes in policy
  • alternate scenario one with ratings if there are age-related spending reforms without health care reform
  • alternate scenario two with ratings if there are balanced budgets and age-related spending reforms without health care reform

According to S&P, emerging market sovereigns, such as those in Southeast Asia, have more favourable demographic dynamics and economic growth, which means their budgetary challenges are less pressing and provide them with time to consider their option regarding their policies. 

G-20 governments' fiscal burdens will increase significantly in 2010-2050.

Without policy changes, health care spending in a number of advanced economies will increase by around six per cent of GDP by 2050.

Health care spending represents the majority of the total increase in age-related spending in more than half of the G-20 advanced economies.

In this scenario, G-20 governments refrained from adjusting their fiscal stance or any policies on age-related spending ...

... leading to downgrade transition in ratings starting in 2015.

In this scenario, governments enacted legislation to contain future increases in age-related spending without tackling the health care spending ...

... causing the ratings to be only slightly less severe than in the no policy change scenario.

In this scenario, governments enacted legislation to contain future increases in age-related spending and balance their budgets by 2016, while initiating no health care reforms ...

... leading to stabilised sovereign ratings, with some weakening as the percentage of ratings in the lower investment-grade categories increased.

NOW WATCH: Money & Markets videos

Want to read a more in-depth view on the trends influencing Australian business and the global economy? BI / Research is designed to help executives and industry leaders understand the major challenges and opportunities for industry, technology, strategy and the economy in the future. Sign up for free at