beyondbrics

The rising costs of pensions and healthcare are challenges not limited to the developed world. As a report from Standard & Poor’s shows, the biggest likely increases in these budgets over the coming decades won’t come in the US, western Europe or Japan – but in Russia, Brazil and South Korea.

Policymakers have no easy answers – anywhere: emerging market governments probably have a bit more room for manoeuvre than their rich-world rivals but not a lot.

“Already, our analysis suggests that the need in some emerging market sovereigns to address demographically-driven budgetary challenges is hardly less pressing than in some advanced economies,” says S&P.

Here is the key chart covering forecasts for 2010-50:

Governments have started trying to get a grip on pension costs, but not on health care, where expected rises linked to the ageing of populations are compounded by likely increases driven by the introduction of new technologies and improved treatments.

S&P says:

We think some G20 emerging economies may have a small advantage over their advanced counterparts when it comes to managing rising health care expenses. Emerging market sovereigns, especially in southeast Asia, still have more favorable demographic dynamics and economic growth. Consequently, these governments may have more time to consider their policy options, although they must also find a way to design programs that are fiscally-sustainable as their populations continue to age.

Without policy changes, the burden on the public finances will grow and “weigh on sovereign creditworthiness” with credit rating downgrades starting in 2015.

S&P says there is no magic bullet solution to these financial challenges. Streamlining heath services, wider applying more technology, and fighting abuse of health care provisions all play a role. So does greater participation by the private sector and – to be blunt – “reducing the scope and generosity of coverage”.

There is little time to waste. As populations age, the political difficulties of securing support for reforming pensions and health care will multiply. However, there are benefits to continuous and early implementation of health care reforms. “If governments change the scope of public health care provision soon enough, it could help spread the burden of adjustment across generations of taxpayers and voters,” says S&P.

So, policymakers, once you’ve solved the eurozone crisis, achieved a soft landing in China and revived the US economy, you’ll still have lots to do.

Related reading
Public heath vital for urban growth, FT letter
Pharma still bullish on EMs, beyondbrics
Drug groups step up emerging markets push, beyondbrics
Big pharma counts the cost of R&D, FT