Over the past 20 years, the youthful populations of South East Asian countries including Thailand, Indonesia, Malaysia, the Philippines, Vietnam, South Korea and China provided the fuel for rapid economic growth.
As the proportion of the working population to the total population grew successively over the period, these countries enjoyed a cushion in terms of high aggregate savings and relatively low government spending on care for the elderly and pension payments.
Research conducted by David Bloom and Jeffrey Williamson back in 1998, attributed two-fifths of the Asian miracle to the demographic dividend reaped by the region at the time.
However, in the coming decade the tide shall turn on this trend. Rising longevity, declining fertility rates and an aging population mix will lead to a higher number of elderly and dependant while the proportion of the working population will shrink.
The economic recession in the West will further aggravate this quagmire for South East Asia as demand for their exports will likely stay lull going forward, keeping the incomes of the working population under check.
A recent publication by the Asian Development Bank entitled, "Pension systems: East and South East Asia" has also highlighted other aggravating trends within the region that could contribute to debilitating conditions for the elderly of Asia.
It highlights that the extended family system that has long prevailed as the modal form of living in the region is rapidly giving way to the nuclear family. Rising rates of urbanisation, coupled with intense competition through liberalised trade is leading many households to break up, with wage earners moving to metropolitan areas, leaving behind their elderly.
In a recent interaction with BR Research, former SBP Governor Saleem Reza explained that there can be two kinds of pension programmes in a country to support its elderly. "Either the programme is backed by savings that these retirees had contributed from their wages while they had been working, or it is dependent on taxes raised from the currently employed population", he said.
Considering that Pakistan entered the demographic transition about 10 years after the South East Asian nations, the experiences of the latter hold profound lessons for the country. At present, Pakistan lags behind in terms of tax revenue generation as well as total savings.
According to the Ministry of Finance, the countrys tax to GDP ratio stood at a woeful 9.9 percent at the end of FY12. The domestic savings to GDP ratio was at an equally dismal level, according to the Economic Survey at 8.9 percent.
The fact that the countrys working population will continue to increase at least up to the 2040s, presents an excellent window of opportunity. But government must act soon to equitably tax all productive sectors, while also encouraging savings by curtailing inflation and providing adequate investment opportunities to the private sector.
The rising proportion of youth is a blessing on this front as it can enable to the government to keep tax rates low, while expanding the tax net to incorporate a wider pool of the population and private enterprises.
The ADB study also highlighted that disproportionate benefits to the civil bureaucracy and military, coupled with low contributions from the same to retirement pools is expected to adversely affect the equity and fairness of compensation to the elderly in the region, going forward.
A similar situation may emerge in Pakistan where military brass and babus of bureaucracy are awarded handsomely in cash and kind while making minimum contributions to retirement funds during their careers.
On all counts, the journey of the South East Asian states appears as a leading indicator for Pakistan. Policy makers need not re-invent the wheel here; all that is needed is a little foresight and lots of political will to do right by this booming population of over 180 million people.
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