Moody's: Demographic Trends Will Weigh on CIS Growth & Fiscal Sustainability

Moody's Investors Service says that the demographic outlook remains adverse for countries in the Commonwealth of Independent States (CIS), which have experienced a significant deceleration in economic growth over the last decade as working-age populations have contracted.

The most affected sovereigns will consequently see growth potential weaken and fiscal challenges mount, but the exact impact on potential and actual GDP growth will vary widely, given divergent trends in working-age populations across the region.

While policy action could counteract ageing and labor force contraction, generally low levels of institutional strength and stretched balance sheets limit CIS governments' capacity to respond effectively.

The economic strength of Belarus (B3 stable), Moldova (B3 stable), Ukraine (Caa2 positive) and Armenia (B1 positive) is most vulnerable to changing demographics, while the Kyrgyz Republic (B2 stable) is most exposed to their credit-negative fiscal implications.

Moody's conclusions are contained in its just-released report, "Sovereigns - Commonwealth of Independent States: Divergence in working-age population trends will shape credit profiles."

Healthcare and pension costs tend to mount as populations age, raising overall government expenditure and reducing fiscal flexibility.

Aging-related spending will increasingly strain government budgets across the region. It will represent a particular challenge for the Kyrgyz Republic, where the 60-plus population is growing extremely fast compared with the working-age population, and counteracting reforms are relatively narrow in scope.

Government-led capital deepening could provide a meaningful offset for Kazakhstan (Baa3 stable) and Russia (Ba1 positive), as they have strong balance sheets that could fund greater public investment on a sustained basis. More generally, the experience of other countries shows that a combination of policies to stimulate entrepreneurship, capital formation, labor force participation and productivity can effectively mitigate the most acute demographic pressures.

Across the CIS, government measures to counter demographic challenges have mainly included reforms to keep older workers engaged in economic activity and fiscal reforms to prevent a structural widening of deficits due to aging-related outlays. The effectiveness and durability of some of these measures is largely untested among CIS sovereigns.

Cross-border migration flows also have the potential to alleviate or exacerbate adverse demographic trends. The opening of EU and Russian labor markets to foreign workers, alongside persistent or widening intraregional income gaps, liberalization of travel, domestic political instability and natural disasters, will drive emigration within and from the CIS. These factors are likely to result in greater working-age depopulation for many CIS countries than the United Nations' demographic projections indicate.

Subscribers can read the full report at

09 July 2018 18:08