Governments urged to face up to fiscal challenge of ageing populations

27 Oct 15

Government action is needed now to meet the “formidable” fiscal challenges presented by shrinking and ageing populations, a report by the International Monetary Fund has warned.

Today’s report found ageing populations will place nations’ public finances under immense pressure if policy responses aren’t developed soon.

The report anticipates spending on age-related programmes such as pensions and health to rise by 9% of gross domestic product in more developed countries and 11% in less developed countries between now and the end of the century.

Without reforms to take this into account, such spending increases could lead to “potentially dire” fiscal consequences, with potentially unsustainable public debt levels leading to sharp cuts in other spending, or large tax increases that could inhibit economic growth.

Declining working age populations alone can also reduce economic growth it added. As fertility and mortality rates have declined at a much faster rate than expected, the IMF called on policymakers to be prepared to deal with an even faster transition to declining populations.

It suggested policymakers make gradual entitlement reforms that can spread the burden across generations, while higher rates of immigration could ameliorate spending pressure and provide more time to phase in reforms.

However in most countries it will be impossible to fully offset the impact of demographics on age-relating spending, so broader reforms to improve public finances will be needed to make spending more efficient.

Globally, the share of the population older than 65 could increase from 12% today to 35% by the end of the century. Populations in several countries are already shrinking, and the latest UN projections anticipate global population levels to start reach their peak in 2100 and start declining shortly afterwards.

 

  • Emma Rumney

    Emma is a reporter at Otsubo7 International. She also writes for in the UK.

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