The U.S. faces severe long-term budgetary difficulty if the large and growing financial imbalances in its entitlement and public-sector pension programs are not addressed, says a report from Standard & Poor's Ratings Services.

"Left unchecked, the financial imbalances in U.S. Social Security and Medicare will make less and less likely the provision of promised benefits at current payroll tax rates, and place increasing pressure on the U.S. federal budget, as the century progresses," said Standard & Poor's credit analyst Nikola Swann. According to the report, "Poor Prognosis: Unfunded U.S. Benefit Programs Could Cause Budget Pain," actuarial estimates put the present-value of the long-term benefit commitments (net of contributions) at US$86 trillion in 2006, dwarfing federal debt held by the public, which amounted to US$4.9 trillion in the same year.

Yet even if these entitlement programs were now in balance, the U.S. would need to provide a greater fiscal effort to fund pension and other post-employment retirement obligations to civil servants and military personnel. Unfunded liabilities for just the federal portion of these commitments amounted to almost US$4.7 trillion in 2006, equivalent to 35% of GDP and nearly as large as federal debt held by the public. These liabilities of U.S. federal and state governments reduce their budget flexibility, and disguise mounting fiscal problems. Moreover, pension schemes dedicated to civilian and military public sector employees are less likely to undergo wholesale revision than are Social Security and Medicare.

"The alternative to addressing these issues now is a sharper fiscal adjustment for future generations," Mr. Swann added.