Population ratios favorable for the Philippines

THE PHILIPPINES has some of the best population ratios, Fitch Ratings said, in contrast to advanced economies facing the prospect of reduced labor forces.

“In advanced economies, the elderly are expected to make up a rapidly rising proportion of their populations over the next 30 to 40 years,” the debt watcher said in a report released yesterday.

Coupled with high public spending for health care, it warned that countries could face severe pressure on their finances as their populations age.

Fitch does not expect to downgrade countries immediately since they still have scope to neutralize the cost impact. But if they fail to address the problem, negative rating actions are possible in the next decade.

“Fitch’s Sovereign Rating Model predicts a 1.5-notch downgrade by 2030 for countries with the worst ageing problem, without any policy reforms … by 2050, the model predicts a five-notch downgrade,” it said.

Japan, Ireland and Cyprus face the “most urgent challenge,” while Luxembourg, Belgium, Malta and Slovenia face the “most severe impact without reform”.

The Philippines, though, should not be troubled by these issues, placing in the top third in terms of population ratios.

In terms of the elderly dependency ratio — the proportion of the population aged 65 and up against the working population — the Philippines notched a healthy rate of 6% in 2010. This is estimated to grow slightly to 9.1% in 2025 and then to 16.3% in 2050.

In contrast, Japan — in the worst third of the rankings — was accorded elderly dependency ratios of 35.5%, 50.5% and 69.6%.

Public spending on health also accounts for a limited portion of the Philippines’ national budget, Fitch said. It again placed in the best third of countries as health spending accounted for 40% and 35.3% of the 2002 and 2010 national budgets, respectively.

Other countries, such as Denmark, Croatia, Luxembourg, Norway and the United Kingdom, spent as much as 75-85% of their national budgets for health care in the same periods.

Reforms are needed to reduce these costs, Fitch said, even as it admitted that these would be “politically challenging” and likely to be deferred.

“Even when passed into legislation, they are not cast in stone, and are subject to the risk of policy U-turns if there is high social pressure, notably in countries with a long history of generous entitlements or those with growing ‘austerity fatigue’ as a result of the eurozone crisis,” it noted.

Governments, however, must put their fiscal houses in order, Fitch urged, especially since debts have piled up over the years.