Ageing & the economy: Act now says former central bank chief

From labour shortages to retirement savings to school closures, now is the time to start planning for a Thailand with many older people and fewer young people which is coming soon.

ECONOMY & THE FUTURE

Ageing & the economy: Act now says former central bank chief

10/03/2017
Tarisa Watanagase

The world is getting older.

The United Nations estimates that the proportion of people aged 60 and above will more than double to 2.1 billion in 2050 from 901 million in 2015.

Accelerating ageing of the population of developing countries, such as Thailand, is a key contributing factor to this trend.

FEWER BABIES + LONGER LIFE = MORE OLD PEOPLE, LESS YOUNG PEOPLE

Low fertility rates and higher life expectancy, which are the major driving forces behind population ageing, are gaining momentum in developing economies such as Thailand.

This is thanks to improved employment opportunities, family planning and medical services.

MANY GROWING ISSUES: SAVING FOR RETIREMENT, LABOUR SHORTAGES...

Population ageing has significant social and economic implications.

Financing expenditure in old age can present a major challenge for households. Businesses may face higher costs from labour shortages and employer contributions to social security funds.

Business and tax revenues may also be squeezed by the elderly's lower spending.

COMING GOVERNMENT BURDEN OF LOOKING AFTER OLDER PEOPLE

Looking after older people as an increasing share of the population (or the "fiscal burden of old-age social services") is an emerging issue in Thailand.

Pensions, healthcare and other social services related to old age are likely to become a major fiscal burden with lower contributions and higher expenditure.

There will undoubtedly be behavioural and market adjustments to the changing demographic structure, such as increased household savings and labor-capital substitution.

However, population ageing remains a significant challenge.

GETTING THE THAI ECONOMY GROWING WHILE ITS POPULATION AGES

It is important that a country attains growth and fiscal sustainability while its population ages.

Global growth has been stagnant for more than a decade, partly as a result of population ageing and the shrinking workforce.

Productivity has also been weak, in part due to lower private investment, a consequence of smaller trickle-down impacts of new digital technologies and the growing services sector.

Government investment has also slowed in light of fiscal constraints.

Fiscal sustainability in a number of countries is threatened by higher pension expenditure and healthcare costs as a result of improved longevity.

MUST ADAPT QUICKLY

The challenges of population ageing are even more critical for developing economies such as Thailand.

These economies must adapt at a quicker pace, often with inadequate social services and lower incomes.

Small and open developing economies that are dependent on exports are especially affected by stagnant global growth.

HELPING THE POOR COPE

Disruptive technologies, such as robots and other labour -saving technologies, will substitute employment both in advanced and developing economies, but are likely to have more significant impacts on the unskilled segment of the workforce.

The unskilled segment of the workforce is proportionately bigger in developing economies compared with advanced ones. Less sophisticated education systems in these markets also make it more challenging to train or retrain populations to adapt to disruptive technologies.

FISCAL SUSTAINABILITY: PAYING FOR GOVERNMENT SERVICES 

Fiscal sustainability is a serious concern.

On the expenditure side, developing economies have a bigger gap to fill between their current level of social services and what is required for their rapidly ageing populations.

There will also be competition over resources for continued economic development, such as in infrastructure, and old-age related services.

On the revenue side, developing economies generally have a small tax base with inefficient tax collection.

Furthermore, a large segment of their economies is often comprised of small- and medium-sized enterprises (SMEs), where employers and employees may have limited ability to contribute to social security funds.

Households likewise may have poorer financial literacy and lower ability to plan for old age and put aside long-term savings.

LEARN FROM RESEARCH ON OTHER COUNTRIES WITH AGEING POPULATIONS LIKE JAPAN 

Developing economies can learn from the extensive studies on policy responses to population ageing in other countries, such as Japan.

These range from encouraging higher fertility rates to pension and healthcare reforms. However, I'd like to add a few more suggestions (read an survey article on this subject here).

ACTION NEEDED NOW

There must be serious efforts to create common understanding and acceptance that, although population ageing may look like a distant challenge, action needs to be taken now since behavioural and structural changes take time.

About half of the 30,000 public schools in Thailand have less than 120 pupils each due to the lower fertility rate. Parents also prefer to send their children to better schools in cities, thanks to the much improved road and transportation systems. This illustrates the lack of government effort to convince local communities that these schools should be consolidated and cost savings shifted to benefits for the elderly.

CULTIVATE CHANGES IN BEHAVOUR NOW

Equally important are efforts to bring about changes in behaviour to deal proactively with population ageing.

A major building material company in Thailand is developing soft bathroom tiles and fixtures to prevent injuries from falls. A Thai medical equipment company has started exporting robots for elderly care to Japan. Such development will support growth and sustainability as the population ages.

Developing economies must establish policies that fit their own contexts and constraints. Incentivising support for the elderly by extended families or communities is likely to be more cost effective than operating nursing homes. The approach also fits the culture of extended families in most developing economies. Hospice and palliative cares may need to be made widely accessible to provide a more cost-effective option than life-sustaining treatments.

Lastly, although governments should play the biggest part in providing adequate social services and maintaining fiscal sustainability, most are focused on the short term. International organisations such as the World Bank, IMF and regional development banks must play a role in providing technical assistance and pushing for policies that respond to population ageing.

Tarisa Watanagase is former governor of the Bank of Thailand. The original article appears in the Official Monetary and Financial Institutions Forum Bulletin.

http://www.bangkokpost.com/opinion/opinion/1212077/ageing-in-developing-economies-at-a-critical-stage

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