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Challenge of ‘greying population needs to be addressed’

/ 08:57 PM December 10, 2015

Thailand and other countries in East Asia and Pacific are facing fiscal pressure due to an increasingly ‘greying’ population, and these nations should act now to avoid a rising burden on state finances and obstacles to productivity and economic prosperity, according to a new report by the World Bank.

The number of Thai working-age adults is estimated to shrink by more than 10 percent between 2010 and 2040 due to the growing ageing population, the bank said in its “Live Long and Prosper: Ageing in East Asia and Pacific” report, which was released yesterday.

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The predicted rate of decline is a little bit higher than that of China, while the country with the most rapidly ageing pace and facing the most fiscal risk is Vietnam.

Philip O’Keefe, lead author of the report, described the challenges to economic growth, the labor market and budgets from ageing in East Asia as “very real”, but the public policy and behavioral responses were not known – and that was where the government, employers and citizens could make a difference.

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“Thailand is amongst the middle-income countries with the more advanced ages in the region, and it is on the transition from an ageing to an aged society.

“The pace is extremely rapid when compared to most parts of the world. Thailand is one of the countries in the region facing the fastest ageing pace, and is already one of the more aged countries,” he said.

“Government alone cannot address all these issues, as it requires both policy change and behavioral change across society,” he stressed.

“The biggest challenge is fiscal and public spending pressures from the pension system, healthcare delivery system and long-term care, which does not exist in any formal way in many parts of the East Asia region,” he added.

Sudhir Shetty, World Bank chief economist for East Asia and Pacific, said: “The middle-income nations of East Asia such as China, Vietnam and Thailand are already ageing quickly and they face some of the most pressing challenges in managing ageing.”

World Bank economists recommend increasing female labor-force participation, a greater state role in subsidizing child care, extending the working life of people, and increasing the level of immigration from ‘younger’ countries as some of the policy responses to mitigate the effects of ageing on a country’s productivity and output.

“East Asia is poised to age faster than any other region in history, with most middle-income countries in this region moving from a relatively young society to a relatively old one in a period of 20-25 years, which is a transition that took 50-100 years in most of the rich countries in the world,” Shetty said.

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He explained that the rapid pace of ageing in East Asia was a product of a very rapid pace of development in most of the region, as a result of which, by 2060, one in five of the ‘oldest’ countries in the world will be from this region – compared to one in 25 in 2010.

The ageing risk to growth is manageable in East Asia, but the fiscal risk is dangerous, O’Keefe said, adding that in developing East Asia the biggest concern is pensions.

By 2070, the increase in pension spending in developing East Asia could reach anywhere between 5 and 10 per cent of the region’s gross domestic product without pension reform, and reform needs to start now before ageing advances further, he stressed.

He said increasing women’s participation in the workforce would have the biggest impact on mitigating an ageing society’s impact on productivity and a declining working population.

This can be encouraged by child-care policies, while conducting pension, tax and labor-market reforms to encourage people to work longer is also another way to mitigate the ageing effects on a country’s fiscal situation, he suggested.

O’Keefe explained that people living in urban areas were starting to withdraw from work and retire too early in China, Vietnam and Thailand due to receiving a pension too early, which was a luxury that no society could afford as it aged.

Direct stimulation of a nation’s fertility, such as baby bonuses and all kinds of direct financial and incentives for people to have babies, has been unsuccessful in many countries that have tried it, he added.

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TAGS: Asia, Business, economic growth, economy, finances, Greying Population, labor market, Thailand
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