How do high interest rates affect seniors?
Decisions to raise interest rates are always reminiscent of the degree of corresponding difficulty that institutions, investors and the economy as a whole may face, but at the same time, they have implications that many may not notice quickly, affecting the most vulnerable and Vulnerable groups in the most vulnerable national societies, including older people, face a wide range of challenges in this uncertain economic environment.
Inflation has risen sharply since last year due to the fallout from the war in Ukraine, and central banks in many countries around the world have been forced to raise interest rates in order to control inflation and overcome the challenges posed by this worrisome rise in political influence on markets. Great, ordinary citizens have direct access to the prices of goods and services.
The elderly are among the most affected groups, as these groups need to stabilize the prices of health care plans and increase pensions commensurate with rising inflation, which is why central banks follow monetary tightening (sum central measures taken by banks to reduce demand for money), in the previous period.
Older people—almost everywhere—suffer from these consequences, and social protection programs introduced by some countries help to alleviate, even to a small extent, the burden on these groups.
Aging population
According to Tunisian economist Reda El-Shakandali, countries with aging populations must:
- Steering large fiscal allocations for health care.
- Protect pension funds from the risk of failure of the institutions that finance them.
- Find a solution to inflation, not raising interest rates.
In a statement to Sky News Arab Economy, Al-Shakandali added: “Inflation in Arab countries is not only monetary (referring to imported inflation factors), so its treatment is certainly far from monetary tightening.
He explained that raising interest rates would have a negative impact on the country’s domestic debt, thereby increasing the pressure on public finances and institutions that pay pensions.
Medical expenses
A report published by the Financial Times highlighted the extent to which older age groups are affected by the state of global public finances, at a time when ratings agencies warned that recent interest rate rises had exacerbated the negative impact on pensions and healthcare costs.
Moody’s, S&P and Fitch warned as interest rates rise to tackle the biggest inflation rise in decades, the report said:
- Deteriorating demographics are already hurting the government’s credit rating.
- Without sweeping reforms, it risks a downgrade.
- This risks creating a vicious cycle of rising financial burdens and rising borrowing costs.
Rating agencies say higher borrowing costs are exacerbating the growing shift in the working-age population and the damage to public finances from rising health care and pension bills.
interest rate effect
Furthermore, Egyptian financial analyst Mustafa Shafie said in a statement to the Sky News Arab Economy website that raising interest rates has a negative effect on any economy (besides the positive effect on curbing inflation) as it would delay any Targeted expansion of Rowad’s planned business, especially in the defense sector, such as healthcare, one of the most important sectors for the elderly.
He referred to the social protection schemes adopted by many countries in this regard and stressed that, for example, in Egypt, the Egyptian budget is currently overwhelmed by the debt burden, so government initiatives are starting to be spent on services for the elderly, especially health insurance plan.
It also explained that inflation has been slowing in most Arab countries recently due to high incomes from high oil prices, so not all countries face the same challenges as Egypt, especially after the liberalization of currency prices.
He noted that with the depreciation of the Egyptian pound against a basket of foreign currencies, the price of medical services sought by the elderly has risen.
- S&P said last January that without steps to mitigate the costs of an aging population, nearly half of the world’s largest economies would drop to junk status by 2060 from about a third of their current levels, according to financial reports. The Times.
- The agency estimates that without reforms to aging-related fiscal policy, the typical government deficit will be 9.1% of GDP by 2060, a sharp increase from an estimated 2.4% in 2025.
- S&P also predicts that pension costs will rise by an average of 4.5 percentage points to 9.5% of GDP by 2060, although there will be wide variation across countries.
- The agency also predicts that between 2022 and 2060, healthcare spending will rise by an average of 2.7 percentage points of GDP.
normal level
On the other hand, Awni Al-Daoud, a Jordanian economist and head of the Center for Economic Research on the Constitution, spoke in an exclusive statement to the Sky News Arab Economy website about the relatively different situation in the country because the currency Inflation is at what he calls “normal” levels in the country, so prices rise interest, so social groups aren’t too affected by the monetary tightening policies pursued by central banks around the world.
Jordan’s annual inflation rate continued to slow to 2.93% in April from 3.91% in March, according to the Jordan Statistics Authority. Annual inflation in March was lower than February’s 4.25 percent rate. Monthly inflation continued to slow to 0.24% in April from 0.47% in March.
Al-Daoud added, “Seniors in the Kingdom of Jordan are covered by government insurance, which has prompted them to hedge against recent ongoing increases in healthcare prices and costs,” noting that seniors may face challenges with high borrowing rates, even if a small percentage, for stability pension and increase the interest value of the loans they have taken over the past few years.
IMF estimates suggest that “growth in the MENA region is projected to slow sharply this year, to 3.1% next year and 3.4% next year”, before growing at 5.3% in 2022.
Funds returned these estimates for a number of reasons. Most notably, countries have imposed restrictive measures in response to soaring inflation, unprecedented rises in interest rates and the lingering fallout from the Ukraine crisis.