According to a new ranking of 163 countries, Europe’s big economies, including France, Germany, Italy, Sweden and the UK, are the most exposed to fiscal risk due to their ageing populations, substantial levels of debt and high public spending on health and pensions.
The Fiscal Risk Index, developed by risk analysis and mapping firm Maplecroft, identifies countries that will come under increasing economic pressure in future years due to low birth rates, high life expectancy and state commitments to look after ageing populations.
The index is calculated using eight indicators: child and old-age dependency ratios between 2010 and 2050; labour rates of the over-65s; gross domestic product (GDP); debt; and public spending on pensions, health and education.
Europe is home to 11 out of the 12 countries rated ‘extreme risk.’ These include: Italy (1), Belgium (2), France (3), Sweden (4), Germany (5), Hungary (6), Denmark (7), Austria (8), UK (10), Finland (11) and Greece (12). Japan (9) is the only other country in the highest risk category.
The ‘extreme risk’ countries are characterised by increasingly ageing populations and high public spending on social security. Maplecroft states that high life expectancy will place more pressure on public expenditure because pensions will need to be paid to more people for longer and an older populace will place larger burdens on health systems. At the same time, the working-age population in these countries is shrinking; meaning contributions to public pensions will likely decrease.
In the UK, there are currently 25 old people for every 100 of working age (25%). This is forecast to rise to 38% by 2050. While high, the UK projection pales against other ‘extreme risk’ countries, including: France at 47%, Germany at 59%, Italy 62% and Japan at the very top with 74%.
Professor Alyson Warhurst, chief executive officer (CEO) of Maplecroft, said: “Governments in high risk countries may need to rely on business to help them absorb the costs. At the very least, governments will need the private sector to recruit and retain older workers and provide for more generous pension arrangements.”
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