Asia has enjoyed substantial demographic dividends, but the growing number of elderly is set to create a ‘tax’ on growth. The International Monetary Fund called on Asian economies to learn from Japan’s experience and act early to cope with rapidly ageing populations, warning that parts of the region risk “getting old before becoming rich.”
Asia has enjoyed substantial demographic dividends in the past decades, but the growing number of elderly is set to create a demographic “tax” on growth, the IMF said in its economic outlook report for the Asia-Pacific region on Tuesday.
“Adapting to aging could be especially challenging for Asia, as populations living at relatively low per capita income levels in many parts of the region are rapidly becoming old,” the report said. “Some countries in Asia are getting old before becoming rich.”
The population growth rate is projected to fall to zero for Asia by 2050 and the share of working-age people – now at its peak – will decline over the coming decades, the report said.
The share of the population aged 65 and older will increase rapidly and reach close to two-and-a-half times the current level by 2050, it said.
That means demographics could subtract 0.1 percentage point from annual global growth over the next three decades, it said.
In Vietnam, people aged 60 or older currently represent about 10.5 percent of the country’s population of over 90 million, according to official data.
Vietnam’s golden population is estimated to last about 30 years from 2010 to 2040. But due to a lower birthrate and longer life expectancy, Vietnam is aging rapidly and the working-age population is shrinking.
Labor officials have warned that Vietnam’s working-age population will shrink so quickly that by 2030 one in six Vietnamese will be over 60 years old, and one in four of the population will be 60 or older by 2060.
The challenges are particularly huge for Japan, which faces both an ageing and shrinking population. Its labor force shrank by more than 7 percent in the past two decades, the IMF said.
The high percentage of its citizens living on pensions may be behind Japan’s excess savings and low investment, which are weighing on growth and blamed in part for keeping inflation below the Bank of Japan’s 2 percent target, the report said.
“Japan’s experience highlights how demographic headwinds can adversely impact growth, inflation dynamics and the effectiveness of monetary policy,” it said.
The IMF called on Asian nations to learn from Japan’s experience and deal with demographic headwinds early, such as by introducing credible fiscal consolidation plans, boosting female and elderly labor force participation, and revamping social safety nets.