S&P warns cuts loom for G20 nations on health costs

Tue Jan 31, 2012 4:08am EST
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By Walter Brandimarte and Stanley White

NEW YORK/TOKYO (Reuters) - Ratings agency Standard & Poor's warned it may downgrade "a number of highly rated" Group of 20 countries from 2015 if their governments fail to enact reforms to curb rising healthcare spending and other costs related to ageing 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 more elderly strain social safety nets, S&P said in a report.

"Steadily rising healthcare 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, healthcare-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.

Byun Yanggyu, director of macroeconomics at the Korea Economic Research Institute warned developed nation will eventually become the victims of their social safety nets.

"The more developed countries get, the more complicated their welfare structures become. In order to cover all necessary means in terms of welfare, spending elsewhere will have to shift there," Byun told Reuters.

"I believe our country is headed more so in that direction...and it will dull our production in the end," he said. "There is a bigger chance that developed countries will be subject to a downgrade from this point of view."   Continued...

<p>Ratings agency Standard &amp; Poors' building is seen in New York's financial district, December 8, 2011. REUTERS/Brendan McDermid</p>