Rapidly rising pension and healthcare spending will reduce the debt status of the world's richest industrialised countries to junk within 30 years unless their governments move quickly to balance budgets and reduce outgoings, a report warns today .

Standard & Poor's, the credit ratings agency, says that, if current fiscal trends prevail, the cost of ageing populations will fuel downgrades of France, the US, Germany and the UK from investment grade to speculative, or junk, category - France by the early 2020s, the US and Germany before 2030 and the UK before 2035. They are currently in the top Triple A category, ensuring they can borrow at low rates.

The debt ratios of these countries are set to reach levels not seen since the second World War, S&P says.

Moritz Kraemer, credit analyst at S&P, says: "Without further adjustment either to current fiscal stance or to social and healthcare costs, the general government debt ratios of France, Germany and the US will surpass 200 per cent. This will result in deficits more akin to those associated with speculative grade sovereigns."

All big industrialised nations face the problem of large unfunded pension liabilities and rising healthcare costs as populations age. Most have responded with limited moves to make benefits less generous.

But S&P's projections already factor in the reductions in public sector pensions made by Germany and Italy last year.

S&P's model shows countries can ease the impact of ageing by running tight budgets before demographic pressures peak. - (Financial Times Service)