Saudi Arabia’s elderly population is expected to grow dramatically over the next three decades putting extra pressure on public finances, according to a new analysis from Standard & Poor’s.
Increased expenditure on healthcare and pensions could swell government debt to 340 percent of GDP at a time when the kingdom already faces economic uncertainty and is preparing to diversify its economy in the coming decades in response.
S&P said in its report on Monday that, in line with United Nations figures, the total population in Saudi Arabia is forecast to expand rapidly from 32 million to 46 million between 2015 and 2050.
Meanwhile, the proportion of elderly people in Saudi Arabia is expected to rise from 3 percent to 15 percent over the same period. With elderly people making up an increasingly significant proportion of the total population, the government will be forced to increase expenditure on pensions and healthcare from 6 percent of GDP today to 14 percent of GDP by 2050, S&P said.
Without further reforms to limit this spending, government debt will rise creating a major drag on sovereign ratings.
S&P said the Saudi Arabian government is likely to consider reforms to its generous pension system over time to make it more sustainable. S&P Global Ratings analyst Trevor Cullinan said: “[An increase in healthcare and pensions spending by the government] could lead to a rapid increase in Saudi Arabia's net debt ratio to 340 percent of GDP by 2050 if governments were to take no further policy action.”
He added: “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.
“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.
“However, over time, we believe Saudi Arabian governments will likely consider demographic reforms to the system to ensure its sustainability.” S&P said its analysis was part of a wider global study to analyse the cost of ageing, entitled Global Aging 2016: 58 Shades Of Gray, published on RatingsDirect in April.