LONDON (Reuters) - Facing aging populations and ballooning healthcare and pension bills, governments must reform welfare systems or face a deterioration in their credit ratings, Standard & Poor's said in a report on Thursday.
The ratings agency looked at 58 nations to assess the economic consequences of demographic changes and concluded that unless countries implemented reforms, more than a quarter of them could have "speculative-grade", or junk, ratings by 2050.
A 2013 report by the agency, which covered fewer countries, found that 60 percent could see their debt being rated as junk by mid-century.
"Over the last five to six years, many sovereigns have introduced structural reforms, and at the same time they have been reducing deficits, which widened very significantly in the aftermath of the financial crisis in 2008," said Marko Mrsnik, director of sovereign ratings and one of the report's authors.
But Mrsnik said there were "steep challenges ahead", with governments facing a tough balancing act between ensuring sustainability while preventing a rise in inequality and poverty.
Emerging economies were in a more difficult position overall, as the benefits of having a generally younger population in the near term would be followed by the challenge of a rapid demographic shift down the line.
"There is still is a demographic dividend – they still have high fertility rates, they are still experiencing an increase in life expectancy, so that means there is still potential for them to reap benefits of this dividend," said Mrsnik.
"But at the same time they should be mindful of the lessons that are being learned across the advanced sovereigns which means at some point the demographic shift will be so strong that it will need to be accompanied by adequate policies."
The report - which covers countries representing 70 percent of the world's population - found that Ukraine, Brazil, China and Saudi Arabia would face the fiercest pressure on budgets from ballooning pension spending.
S&P based its study on demographers' expectations that the ratio of old-age dependency - the number aged over 65 relative to those aged 15-64 - will double by 2050 in most countries.
Eastern European countries are expected to see a particularly steep rise in the ratio, as overall population trends are amplified by the emigration of young workers.
Reporting by Karin Strohecker; editing by Andrew Roche