Ratings agency Standard & Poor's warned it may downgrade "a number of highly rated" Group of 20 countries from 2015 if their governments fail to enact reforms to curb rising healthcare spending and other costs related to ageing populations.
Developed nations in Europe, as well as Japan and the United States, are likely to suffer the largest deterioration in their public finances in the next four decades as more elderly strain social safety nets, S&P said in a report.
"Steadily rising healthcare spending will pull heavily on public purse strings in the coming decades," S&P analyst Marko Mrsnik wrote in the report.
"If governments do not change their social protection systems, they will likely become unsustainable."
If no reforms are adopted, healthcare-related credit downgrades would likely start within three years, eventually leading to an increase in the number of junk-rated countries as of 2020, the study showed.
Healthcare will likely be the fastest-growing expenditure for developed countries, which already have high social protections and rapidly worsening demographic profiles.
For example, Japan's population is expected to decline by 30 percent by 2060, with two out of every five people turning 65 or older, according to official data.
Japan's welfare spending, which includes pensions and health, is expected to reach nearly 108 trillion yen (889.5 billion pounds) in the current fiscal year, around 22 percent of GDP.
By 2025/26, spending is forecast to hit 141 trillion yen.
"Over time it must be a real problem for Japan," said Adrian Foster, head of financial markets research at Rabobank International in Hong Kong. "There's a call for authorities to push through fiscal reform. When you look at the government they seem to lack any real ability to respond to it."
City A.M. Reporter