S&P monitoring health costs in G20 nations

Ratings agency Standard & Poor’s warned it may downgrade “a number of highly rated” Group of 20 countries as of 2015 if their governments fail to enact reforms to curb rising health-care spending and other costs related to aging populations.

Developed nations in Europe, as well as Japan and the United States, are likely to suffer the largest deterioration in their public finances in the next four decades as aging populations strain social safety nets, S&P said in a report published on Monday.

“Steadily rising health-care spending will pull heavily on public purse strings in the coming decades,” S&P analyst Marko Mrsnik wrote in the report. “If governments do not change their social protection systems, they will likely become unsustainable.”

If no reforms are adopted, health-care-related credit downgrades would likely start within three years, eventually leading to an increase in the number of junk-rated countries as of 2020, the study showed.

Health care will likely be the fastest-growing expenditure for developed countries, which already have high social protections and rapidly worsening demographic profiles.

For example, Japan’s population is expected to decline by 30 per cent by 2060, with two out of every five people turning 65 or older, according to official data.

Emerging market countries, especially in Southeast Asia, have a little more room to manoeuver due to more favourable demographic dynamics and economic growth, S&P said.