Asia: A need to act early on ageing populations, warns IMF

| 16 May 2017

The International Monetary Fund (IMF) has 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."

In an economic outlook report for the APAC region released last week, the IMF warned that the growing number of elderly is set to create a demographic ‘tax’ on growth, even as Asia has enjoyed substantial demographic dividends in the past decades, reported Reuters.

Sobering demographic trends

"Adapting to ageing 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."

According to the report, population growth rate is projected to fall to zero for Asia by 2050 and the active population, now at its peak, will decline over the coming decades. The proportion of those aged 65 and older will increase rapidly and be almost 2.5 times the current level in 2050. That means demographics could subtract 0.1 percentage point from annual global growth over the next three decades, it said.

Learn from Japan’s experience

The challenges are particularly huge for Japan, which faces both an ageing and shrinking population. Its labour force shrank by more than 7% in the last two decades.

A high percentage of its citizens living on pensions may be behind Japan's excess savings and low investment, which are weighing on growth and partly account for why inflation is below the central bank’s 2% target, cited Reuters.

Japan's experience highlights how demographic headwinds can adversely impact growth, inflation dynamics and the effectiveness of monetary policy," said the IMF report.

It 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 labour force participation, and revamping social safety nets.

The IMF's full report can be found here.