Demographic red flags for the economy

SRI Lanka’s most valuable resource is its people. Some will contribute to the economy, either by building enterprises or by working for them. Others will be too young to work. Yet others will be considered to have completed their work life.

- By Prof. Rohan Samarajiva

Beneficiaries, 2014-2024 Cost of pensions, 2015-2024, in thousands of rupees

(Source: https://www.parliament.lk/en/business-of-parliament/papers-presented)

It is important to understand how many are in what categories and what changes over time mean for the economy and society. Investments may not be made if the right kinds of people are not available. Taxes will have to be increased if the state has to take care of more of the elderly. Health expenditures may be out of control.

The concept of a demographic dividend, wherein the working-age population has to deal with low elder dependency and low child dependency directly or indirectly, is now widely accepted. An example of direct is the expenditures incurred by parents in providing care for preschool children while they work. Indirect is where taxes have to be paid to fund elder care and the additional demands made on the public healthcare system.

Low elder and child dependencies are seen as having contributed to the rise of the Asian Tiger economies (Korea, Hong Kong, Singapore and Taiwan), more than the industrial policies dear to many Sri Lankan decision makers. If the youthful energies associated with the dividend are blocked from productive activity, insurrections will arise. Sri Lanka has run through its main demographic dividend period from the 1970s with little to show other than deaths and damage from three insurrections.