Sri Lanka turning grey

by Lionel WIJESIRI

Most of us understand that Sri Lanka is turning grey; that more and more of us will soon join the legions of the elderly, even as the numbers of those of working age left to support the elders dwindle. But if this problem has become quite well-known, the startling size of it is sometimes forgotten. So, too, is its urgency.

According to recent projections, the percentage of 60+ years of population will rise to 16 percent by 2020. The projections further reveal that over the next 40 years, the 60 year-olds will reach over 30 percent of the population. At the same time, growth in the population of traditional workforce age is expected to slow down dramatically. This is a permanent change.

While population aging represents, in one sense, a success story for our country (survival to old age has become possible), it also poses profound challenges to public institutions that must adapt to a changing age structure.

Challenges

The first challenge is associated with the dramatic increase in the older retired population relative to the shrinking population of working ages, which creates pressures on social support systems. The rapid population ageing will place a strong impact on social security programs.

Cuts in social benefits, tax increases, massive borrowing, lower cost-of-living adjustments, later retirement ages, or a combination of these elements will be the possible painful policies. They will become necessary to sustain the public retirement programs and the increasing senior citizens’ social upkeep.

Population aging is also a great challenge for the public health care systems. As a country ages, the prevalence of disability, frailty, and chronic diseases (Alzheimer’s disease, cancer, cardiovascular and cerebrovascular diseases) is expected to increase dramatically.

Choices

So what are the choices?

We could elect to do nothing now, and raise taxes in the future to cover budget deficits as they occur. Some argue in favour of this position, noting that in 40 years average incomes will be substantially higher than they are today due to continuing economic growth. They argue a richer society will be able to afford higher taxes. While society will be richer, we need to think carefully before condemning our children to higher taxes.

An alternative approach would be to cut future government expenditure by around five percent of GDP. But again, the dimensions of such spending cuts are enormous.

Clearly neither of these options could ever seriously be contemplated.

The best approach is to look for ways to increase the size of the economy so that we all have higher incomes and are better able to meet the costs associated with our ageing population. The way to increase the size of the economy is to grow at a faster rate.

Productivity

On the positive side, the health status of older people of a given age is improving over time now. Older people can live vigorous and active lives until a much later age than in the past and if they're encouraged to be productive, they can be economic contributors as well.

There is another critical challenge that we must confront. This concerns productivity and economic reform.

The national growth of a country is determined by the working population and its productivity, or output per person. Therefore, a declining pool of labour threatens to undercut growth and living standards. That threat will be aggravated by the effect of increased saving of existing workers on consumption and investment. Proper planning to enhance productivity to offset a shrinking workforce is, therefore, vital.

Radical and determined structural reform is now urgently required, and failure will come at the highest of costs. An ageing Sri Lanka is one with no time to waste.