The aging of the population will affect the public finances of governments in most countries of the world, and rating agencies warn that this will put pressure on sovereign ratings, write Financial Times journalists.

According to Moody’s Investors Service, an aging workforce is putting pressure on South Korea’s economic and fiscal strength, for example by affecting its long-term sovereign credit profiles.

Back in 2018, the global rating agency said in a report that the credit ratings of South Korea and Japan would come under severe pressure from “a combination of lower economic growth and higher public debt amid an aging workforce” in 2030.

Despite efforts to increase the participation of the elderly and women in the labor market, the impact of a shrinking working-age population on the economy’s productive capacity “will not be offset,” the agency said, noting that Korea’s potential GDP growth would fall to 2 percent in the coming decades.

South Korea has become an aging society, with nearly 20% of the population over 65 years of age.

Ratings agency Fitch also says the impact of aging spending on public finances could lead to lower sovereign ratings in the medium to long term in the absence of reforms.

The biggest impact of aging-related costs on ratings will be seen only after 2030, Fitch says, driven by significantly higher pension and health care costs amid a decline in the number of contributors to the budget.

An aging population has been observed in Europe for several decades

This aging process is driven by historically low birth rates, increased life expectancy and, in some cases, migration patterns (for example, those EU member states characterized by net flows of retirees). Population projections show that the aging of the EU population will accelerate in the coming decades.

The population of older people (defined here as those aged 65 and over) in the EU-27 will grow significantly, rising from 90.5 million at the beginning of 2019 to 129.8 million by 2050.

In Romania, the phenomenon of demographic aging has intensified, the elderly population aged 65 and older exceeds the young population aged 0-14 by more than 22%

In 2022, the process of demographic aging continued, with a slight decrease (by 0.2 p.p.) in the share of young people (0-14 years old) and at the same time an increase (by 0.4 p.p.) in the share of the elderly population (aged 65 and over older) in the total population.

The demographic aging index increased from 118.8 on January 1, 2022 to 122.6 elderly people per 100 young people on January 1, 2023