A report by Standard & Poor revealed that some 60 percent of countries around the world will be bankrupt within 50 years. According to the report, entitled Global Aging 2010: An Irreversible Truth, these countries will be in such great debt by 2060 that their debts will eventually be downgraded to “junk status.” Countries with a junk debt status will find it virtually impossible to borrow money from the global community. This, in turn, will effectively bankrupt the said economies. The report also warned that attempts to address the potentially devastating effects of the projected bankruptcies — whether through tax hikes, spending cuts or both — may strain the relationship between the state and the electorate.

The aging population might be a contributing factor to these bankruptcies. As per the report, the global elderly population is slated to grow exponentially that many economies around the world will not be able to keep up with the increasing costs of medical care and other health services. The report also stated that as the elderly population live longer due to better health care, the ratio of older people will grow more compared with the rest of the global population. As a result, an even smaller proportion of working people will be expected to shoulder the funds aimed at elderly services. However, the report cautioned that government initiatives designed to cut back on service costs could severely test social cohesion. The authors also noted that current public opinion is generally unfavorable for reducing social services costs.

According to the report, the projected deterioration of public finances may prove to be especially significant in advanced economies, while emerging markets outside of Europe may show a more positive outlook. However, the report cautioned that while these emerging markets develop, government spending is expected to grow faster than gross domestic product. This has been an ongoing trend among developed economies, the report stated.

Junk debt ratings around the world

The Standard & Poor report also showed that a junk debt rating is seen in about one in eight countries around the world. The report also found that just under 30 percent of countries worldwide have a triple-A credit, which indicated the best possible score. Should the current trend continue, 60 percent of countries around the world will fall under junk debt rating by 2060, while a minuscule number of nations will attain a triple-A rating, if any at all.

In addition, the report also revealed that the overall global debt burden averages to about 40 percent of GDP. This rate is projected to increase by 245 percent by 2050. According to the report, the U.S. is among the countries projected to have a junk debt rating. The U.S. is also expected to have its debts skyrocket from 69 percent in 2010 to of 415 percent of GDP by 2050. This is significantly higher than the massive debt levels incurred during World War I and World War II, the report indicated.

“The challenges ahead are daunting for the vast majority of [countries] covered in this survey. Nevertheless, our study suggests that unless advanced sovereigns embrace reforms at a faster pace, the fiscal pressures will become increasingly unsustainable. At the same time, the aging demographic profile of their electorates could well make the political climate for reforming pension and health-care programs even more difficult than it is currently,” the report authors noted in RawStory.com.

The authors recommended that governments act on the issue sooner than later, as delays would make the matter more difficult to handle. Addressing the issue “may be vital to maintaining social stability. After all, changing the scope of public pension and health-care provision can, if embraced soon enough, help spread the impact over an extended period, with “the burden of adjustment shared across generations of taxpayers and voters,” the authors added.

Sources include: 

RawStory.com

FinanceAsia.com