Aging in the Asian Tiger Economies

• Author: Peter S. Heller
• Position: Deputy Director of the IMF's Fiscal Affairs Department

What challenges will the aging of populations in Asia's tiger economies pose for their social insurance and educational systems? What effects will this have on their budgets, and on their saving rates and total savings, as well as on those of the global economy?

IN THE SWIRL of commentary on the Asian tigers in recent years, one facet of their longer-term prospects not often remarked upon is that their populations are aging. By 2025, the share of the elderly in the populations of China, Hong Kong SAR, Indonesia, the Republic of Korea, Malaysia, the Philippines, Singapore, Taiwan Province of China, Thailand, and Vietnam-referred to collectively in this article as the "Asian tigers"-will at least double, and the share of the young will fall sharply. There has also been a transformation in their health situation, with patterns of illness and medical treatment increasingly mirroring those in industrial countries. These developments will affect the Asian tigers' labor markets, savings, investment, and growth rates, and pose important policy challenges for governments, particularly in the social sectors. Given the increasing importance of Asia in the world economy, there may also be global macroeconomic ramifications.

Demographic trends

The demographic profiles of the Asian tigers fall into three groups. The most developed of these (which are hereinafter referred to as the East Asian tigers)-Hong Kong SAR, Korea, Singapore, and Taiwan Province of China-are also the most advanced in terms of population aging. Their working-age populations will increase modestly during 2000-2030 and then shrink, putting a brake on real economic growth rates. By 2010, their overall dependency rates-the sum of their youth and elderly dependency rates (the ratios of their populations under age 15 and over age 64, respectively, to their working-age populations)-will begin to rise sharply, reflecting the rising share of the elderly. China's aging process will mirror East Asia's, though with about a 10-year lag, and China's annual population growth rate is projected to decrease. In contrast, for Indonesia, Malaysia, the Philippines, Thailand, and Vietnam (hereinafter referred to as the Southeast Asian tigers), the declines in fertility and increased life expectancy are more recent developments. Until 2020, there will be gradual but significant contraction in both the youth and overall dependency rates. After 2020, the former will largely stabilize while the latter will begin to rise sharply, reaching approximately 25 percent by midcentury, still below the rates in the more developed tigers.

Public policy challenges

Aging populations pose important long-term public policy challenges. Educational systems need to adapt to a stabilized youth population and changing skill requirements for the labor force. Social insurance mechanisms are needed to ensure that elderly persons have adequate incomes when they retire, particularly as traditional extended family support systems weaken. These rapidly modernizing societies will also confront difficult challenges in meeting growing but shifting demands for medical care.

The public pension and medical care systems of Asia can be characterized not only by the innovativeness of some and the openness to experimentation of others but also by the limited coverage of the populations in some countries. For example, there is largely universal coverage in the pension or provident fund systems of Korea, Malaysia, Singapore, and Taiwan Province of China (and, in the near future, of Hong Kong SAR). In other countries, however, pension coverage of the labor force is still largely limited to the civil service and/or the larger enterprises in the formal sector, and replacement rates (that is, ratios of pension payments to wages earned just before retirement) are low.

The government's role in the medical sector is equally varied. The East Asian tigers have introduced relatively comprehensive medical insurance schemes to rationalize the financing of medical care, cope with the changing pattern of demand, and use market principles to contain costs. In contrast, insurance coverage in China effectively applies to only about 20 percent of the population. In urban areas, medical "insurance" systems are either municipality- or larger...