ECONOMYNEXT – The rapid aging of Sri Lanka’s population and fall in the share of working people will affect the country’s long-term productivity growth, a new study has said.
The economy’s progress may be impacted by an aging population that will put pressure on pensions and social expenditures, according to the joint study by Asian Development Bank and International Labour Organization.
“The decline in the working population as a share of the total will have a tremendous impact on the macroeconomic structure in consumption and investment, affecting long-term productivity growth,” it said.
“This will have significant impact on the economy on various fronts, including decreasing demographically determined tax contributions and increasing the tax burden of social welfare,” it said.
The aging population also means a decline in the relative size of the economically active people, a changing dynamic in the migration of the labor force and changes in the structure of demand for goods due to a shift in the age structure.
“Slowing population growth will reduce the labor force participation rate and impede production in the economy,” the report said.
“As it is, the country is also losing a large portion of its workforce to overseas employment.”
The study noted that for an aging society with a decreasing labor force to sustain consumption levels, productivity growth has to be enhanced, driven by increased physical capital intensity and strengthened human capital.
“It is important for the Government of Sri Lanka to anticipate the potential impact of the demographic transition on economic development and develop strategic plans to avoid a potentially harsh transition.”
(COLOMBO, December 11, 2017)