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Johannesburg- An ageing population will place pressure on economic growth and public finances and can influence the country's credit rating, according to a report by S&P Global Ratings.
S&P studied 58 countries, representing 70% of the world's population, for its analysis on the cost of ageing. It suggests that South Africa’s old-age dependency ratio will rise to 15% in 2050, up from 7.7% in 2015. The report stated that an ageing population will drive demand for public health care and long-term care services and state pensions. S&P believes that South Africa’s age-related spending will double.
“An ageing population forces a burden on the economy,” said Rob Price, economist from Investment Solutions. If people do not have a private pension, they will likely claim for grants, which becomes a cost to the government, he explained.
S&P projected the working age population to grow to 69% by 2050, from the current level of 65.7%. If many people are reaching retirement age and moving out of the workforce, fewer resources in the form of labour can be put back into the economy, said Price.
The outlook for the economy also depends on the “capital” of the labour force. This is the level of skill and education of the working age population to conduct their jobs, he added.
Impact on sub-investment grade
S&P takes a large number of factors into consideration when determining sovereign credit ratings. South Africa’s BBB- rating could come under pressure if age-related spending is a fiscal burden, the report stated.
Fiscal indicators in South Africa could improve if government introduced structural reforms to prevent age-related spending from rising, or consolidated its budget for a sustained period, S&P concluded.
