Saudi Arabia's ageing population could increase public debt and weigh on ratings: S&P

Muscat: Saudi Arabia's growing elderly population could put pressure on public finances and increase government debt over the next three decades in the absence of government reforms to contain the cost of age-related spending, says S&P Global Ratings in a report published on Monday (Global Aging 2016: Saudi Arabia's Aging Population Could Drag On Public Debt).
In line with United Nations figures, S&P forecasts the Saudi Arabian population will expand rapidly from 32 million to 46 million between 2015 and 2050. Over the same period, the proportion of elderly people will rise to 15 per cent of total inhabitants from 3 per cent today.
As a result, age-related government expenditure on pensions and health care would rise to 14 per cent of GDP by 2050 from 6 per cent today by S&P’s analysis.
"This could lead to a rapid increase in Saudi Arabia's net debt ratio to 340 per cent of GDP by 2050 if governments were to take no further policy action," said S&P Global Ratings analyst Trevor Cullinan. "The sovereign credit ratings on Saudi Arabia would decline to speculative-grade in such a no-policy-change scenario, which is not our base case," he added.
"Owing to growth in the young population, subscribers to Saudi Arabia's generous pension system have been outstripping growth in the number of beneficiaries, contributing to the overall financial health of the system," said Cullinan.
"However, over time, we believe Saudi Arabian governments will likely consider demographic reforms to the system to ensure its sustainability," he further added.
S&P Global Ratings' analysis of Saudi Arabia is part of a global study conducted to analyse the cost of aging.
The study explores various scenarios — including a no-policy-change scenario — and the implications that we currently believe these different scenarios could have on sovereign ratings over the next several decades.