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Estonia, Latvia and Lithuania will face greater challenges in providing for their older populations because their aging statistics are rising rapidly and their per capita GDPs are much lower than the EU average, which will not only constrain growth in the long term but adds to fiscal pressures.

"Baltic States' governments have attempted to implement a range of pension reforms to offset the fiscal pressures of this aging trend," said Evan Wohlmann, Assistant Vice President -- Analyst and author of the report. "But according to the European Commission (EC) much more needs to be done in order to put social security funds on a sustainable footing."

Data from ''Eurostat'' indicates that the % age of the total population that is elderly in the three states is set to increase to between 25 % and 29 % in 2060, from around 18 % in 2013. This is expected to place a fiscal burden on the Baltic region as governments try to provide for their older residents.

According to the EC, Lithuania faces "medium" fiscal sustainability risks with an adjustment effort in excess of 3 % of GDP in the long-term, mainly due to the projected aging costs. By contrast, Estonia and Latvia face adjustments of less than 1.5 %, reflecting smaller adjustments due to aging costs (0.4pp in Estonia and a negative gap in Latvia). Latvia's strong fiscal sustainability reflects the projected decline in aging costs until 2060 as a result of its recent and planned pension reforms. Estonia's favorable sustainability metrics are a reflection of similar reform efforts and its overall lower debt burden. For comparison, aging costs in Lithuania are projected to rise more than 2 % age points by 2060.

Estonia's fiscal prudence, higher share of value-added exports and closer links with Nordic economies underpins ''Moody's'' assessment of its stronger ability to repay creditors and warrants its rating that is two notches higher than its Baltic peers. In particular, Estonia has a large electronics sector which has contributed most to the average five % growth in manufacturing achieved over the past four years. Estonia has an advanced and forward-looking industrial policy that has developed since ''Skype'' was founded in Estonia 10 years ago, making it one of Europe's most successful technology start-up hubs.

The peer comparison report also notes that the three countries share a number of credit strengths, including very high institutional strength, resilient government balance sheets and a robust recovery from the global financial crisis. These strengths are balanced by volatile economic growth, heightened geopolitical concerns and their demographic challenges.