Malta facing ‘most severe impact’ of ageing costs, Fitch warns on pensions

A report published this morning by Fitch Ratings, has warned Malta that unless action is taken to address the impact of long-term ageing, it could face fiscal shock.

Malta, together with Luxembourg, Belgium and Slovenia were named by Fitch as the countries facing the most severe impact over the very long term.

The agency warned in its report 'Ageing costs: The Second Fiscal Crisis' that without major pension reforms Fitch would expect to take negative rating actions over the next decade on the countries facing the most pressing ageing pressures.

Fitch said that under a no policy response scenario, Fitch's Sovereign Rating would have to be "thoroughly revised."

The model (SRM)prepared by Fitch predicts a 1.5-notch downgrade by 2030 for countries with the worst ageing problem, and a five-notch downgrade for them by 2050. 

The agency warned that without the implementation of mitigating reforms the median country analysed in the new report, is projected to see its budget worsen by 0.6% of GDP by 2020 and 4.9% of GDP by 2050.  Consequently, many of these countries would experience escalating government debt-to-GDP ratios, with the average EU27 debt-to-GDP projected by Fitch to rise by 6.9% by 2020 and 119.4% by 2050.

Also, without reforms to boost labour productivity and/or participation rates in many other advanced economies, population ageing will cause potential GDP growth to decline over the long-term, exacerbating the fiscal challenge.