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SINGAPORE, (Reuters) Asian governments will have to look towards market-oriented policies and rethink social welfare as populations grow older and more urban, the Asian Development Bank (ADB) said on Tuesday.

Population growth rates began to decline throughout the Asia-Pacific region between 1995 and 2000, with senior citizens the fastest-growing age group, according to the ADB's latest annual statistical report released on Tuesday. But the trend was not uniform. The East Asian region comprising China, Hong Kong, Taiwan and South Korea had among the lowest population growth rates.

The South Asia region, made up of Afghanistan, Bangladesh, Bhutan, India, the Maldives, Nepal, Pakistan and Sri Lanka, is expected to experience the largest share of population growth. All countries in South Asia except Bangladesh, India and Sri Lanka will see their population double by 2050, the ADB said. The differing growth rates meant a greater number of people of working age in some countries and labour shortages in others.

"The nature of population trends is such that governments have to increasingly adopt more market-oriented policies," Nagarajah Gnanathurai, assistant chief economist with the ADB's Economics and Research Department, told a news conference.

"Otherwise, it's very, very difficult, especially for the more progressive countries in terms of GDP (gross domestic product) growth, to maintain their competitiveness." He said countries with labour shortages and surpluses needed to cooperate and liberalise labour markets to try and close gaps. Urbanisation is another pressing problem for the region. The annual urban growth rate between 1990 and 2001 was 2.9 percent, compared with 1.1 percent for rural areas.

Eleven of the world's 21 mega-cities - those with populations of more than 10 million - will be in Asia by 2015, Gnanathurai said.

"The growth of mega-cities presents a problem of urbanisation that is rather unlike just normal cities because of all the congestion," said Christopher Edmonds, an economist with the ADB's Economics and Research Department.

"The need for infrastructure, for environmental controls, becomes much more pressing as well as much harder to execute." The challenges of an increasingly urban, ageing population favoured fully funded pension systems where each generation put aside money for themselves, the experts said. The alternative was a pay-as-you-go system in which the current working population provided for the older, retired group.

"Most countries are going to be experiencing slowing in their population growth rate and the eventual ageing of (their) population," Gnanathurai said.

"It will mean that a fully funded system will be a more suitable one to ensure that the aged, or the senior citizens enjoy a reasonable standard of living." But he added that making the change to a fully funded system was tough, as seen from the experiences of industrialised countries such as the United States, Canada and Japan.

The HIV/AIDS epidemic, particularly in the Mekong countries of Cambodia, Laos, Myanmar, Thailand and Vietnam, along with India and Nepal, was another worrying trend.

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