Russian Debt May Reach 585% of GDP on Demographic Woes

Russia’s debt may surge to 585 percent of gross domestic product by 2050 as the population declines and the government ramps up spending, pushing the credit rating below investment grade, Standard & Poor’s said.

The population will probably shrink to 116 million by 2050 from 140 million last year, forcing the government’s age-related expenditures to rise to 25.5 percent of GDP from 13 percent in 2010 in the rating agency’s “base-case scenario,” S&P credit analysts led by Frank Gill in London said in a research note e- mailed today and dated Feb. 8.

The demographic decline will lead to “prolonged fiscal imbalances,” putting Russia’s credit rating under “rising pressure” after 2015, according to S&P. Russian government debt is rated BBB at Standard & Poor’s, two notches above junk. The country’s state debt made up 9.5 percent of GDP, Finance Minister Alexei Kudrin said on Feb. 2.

“Russia’s aging population will likely place substantial pressure on economic growth performance and public finances,” the analysts wrote. “By 2035, we expect that Russia’s fiscal indicators will have weakened such that they would be more in line with sovereigns currently rated in the speculative-grade category, because, in our view, the projected improvement in GDP per capita would not be able to offset the potential fiscal deterioration.” (more)