Estonia, Latvia and Lithuania are among the most vulnerable countries in the world to an unprecedented pace of ageing population that is forecast to slow economic growth over the next 20 years, Moody's Investors Service said in a report published on Friday.
The three Baltic states will face greater challenges in providing for their older populations because their ageing statistics are rising rapidly and their per capita GDPs are much lower than the EU average, which will not only constrain growth in the long term but adds to fiscal pressures, the agency said in its report.
"Baltic states' governments have attempted to implement a range of pension reforms to offset the fiscal pressures of this ageing trend," said Evan Wohlmann, Assistant Vice President at Moody's Corporation and author of the report. "But according to the European Commission (EC), much more needs to be done in order to put social security funds on a sustainable footing," he added.
Data from Eurostat indicates that the percentage of the total population that is elderly in the three states is set to increase to between 25 percent and 29 percent in 2060, from around 18 percent in 2013. This is expected to place a fiscal burden on the Baltic region as governments try to provide for their older residents.
However, Moody's said that Estonia's fiscal prudence, higher share of value-added exports and closer links with Nordic economies underpin its stronger ability to repay creditors and warrants its rating that is two notches higher than its Baltic peers. “Estonia has a large electronics sector which has contributed most to the average 5 percent growth in manufacturing achieved over the past four years. Estonia has an advanced and forward-looking industrial policy that has developed since Skype was founded in Estonia 10 years ago, making it one of Europe's most successful technology start-up hubs,” the agency said.
The report also notes that the three countries share a number of credit strengths, including very high institutional strength, resilient government balance sheets and a robust recovery from the global financial crisis. These strengths are balanced by volatile economic growth, heightened geopolitical concerns and their demographic challenges.
Moody's is the credit rating agency of Moody's Corporation.
Editor: S. Tambur