The failure of developed countries to meet their future pension and health care obligations shouldn’t jeopardize countries’ credit ratings because governments will just back out of these promises, according to a new report from Moody’s Investor Services.

In the latest issue of its Bank Risk Monitor, Moody’s says, “Even though it will be impossible for any of the major developed nations to meet presently promised pension and senior healthcare benefits, there is little risk that the credit worthiness of those sovereign nations will be impaired as a result.”

The rating agency says that pension and health care promises cannot be met because they are too generous compared to future resources. “Instead of fulfilling the terms of its entitlement programs for retirees as imbedded in current law, the consensus expectation is that national governments will simply trim and change those programs to conform to economic realities as they unfold,” it says.

Moody’s argues that because national governments are sovereign, have access to legal redress, the authority to levy taxes, and can enact new legislative mandates, they are able to significantly change the nature of any contract. “Consequently, any prior pension or healthcare promise undertaken by a previous national government is a contingent liability, at best.” It adds that the consequences of this distinction for creditworthiness are significant.

While governments have plenty of latitude to change benefits programs, Moody’s suggests that more fundamental policy changes will be necessary, too.

“More than altering benefits or raising contributions, governments will probably find it necessary to take steps to alleviate some of the demographic stress. One suggestion, among several, would simply be encouraging families to have more children, which would include making it easier for women to raise their children if they continue to work outside the home.”