Ageing population and economic effects

Sunil KARUNANAYAKE

The economy of a nation depends on people. Economy drives on consumer demand generated both locally as well as external and the purchasing power that's generated by the people.

This phenomenon was clearly demonstrated during the downturn and the global economic crisis that adversely affected leading economies in US and Europe due to restricted purchasing power.

Sri Lanka too is facing issues of an ageing population

Mass layoffs and consequent unemployment seriously reduced consumer spending leading to a vicious cycle. These forced Governments to initiate bail outs at a cost to the budget deficit.

All these undermine the importance of a healthy and cared population that's not an economic burden. Healthy population could bring in long-term benefits through higher productivity and improved quality of life reducing Government expenditure on health care.

In the midst of the global economic crisis another casualty was the external demand.

China on realizing declining export demand amidst global economic crisis took serious steps for fiscal expansion and a range of policies aimed at improving pensions and health care creating a social safety net aiming at improving the quality of life.

In the Western world health care and pension took a heavy beating within the financial turmoil.

Sri Lanka's health and education policies over the years have made a significant contribution in maintaining physical quality of life people ahead of many developing countries.

Retirement benefits by way of pension funds and retiring gratuities were initiated during the colonial administration. However they were mostly confined to private establishments under European ownership.

It was in 1958 that the Government legislated the contributory Employers Provident Fund (EPF) that has now become the largest superannuation fund with assets valued at RS 772 billion.

In 1982, the then Government went ahead with two far reaching legislations bringing about the Employers Trust Fund (ETF) contributed fully by the employers now valued at Rs 103 billion. Private Provident Funds account for Rs 122 billion. The Gratuities Act was also enacted in 1982 ensuring reasonable retirement package.

All these mechanisms to date cover only the formal sector. In realizing the need to provide retirement benefits to a wider section of the population Government proposed in the 2011 budget.

Sri Lanka too is facing issues of an ageing population due to birthrate decline and an increase in old age dependency ratio. This ratio is expected to rise further.

In recent times the Government has invested heavily in health care by upgrading hospital facilities in most parts of the island, this certainly has made a useful contribution to rural folk who previously had to travel long distances to base hospitals for specific ailments.

However it's unfortunate that health insurance facilities are not available to those over 65 years, except insurance provided by foreign insurers that's affordable only to a minority.

The over 65 year sector is the most vulnerable to health care needs. This should be a matter for the regulator, the Insurance Board of Sri Lanka.

Sri Lanka has 18 companies in the insurance business of which seven are listed in the Stock Exchange. This is an industry with a value of RS 180 billion. Given the absence of developed private health insurance facilities most citizens save adequate funds to meet medical needs for chronic illnesses in old age.

A well managed insurance scheme would minimize such precautionary needs channelling the savings to promote consumption. Retirement is another matter for Sri Lanka as 55 years (reduced from 60 in 1970) is considered reasonably low with most employees reaching their peak performance during 55 to 60 age range. Most countries have extended the retirement age beyond 60 years.

France currently in the process of going through major pension reforms is planning to raise the statutory retirement age from 60 to 62; full pension benefits too are to be extended from 65 to 67.

The 90 percent of the increase in per capita economic output during England's 1680-1880 productivity booms is explained by a decline in adult mortality, according to Michael Bar of San Francisco State University and Oksana Leukhina of the University of Washington.

Adults who live longer have more years in which to transfer knowledge to the next generation, thus contributing more to economic development. Adult mortality declined from about 40 percent at the end of the 17th century to less than 10 percent at the end of the 19 century.

(Harvard Business Review)

China now a global superpower and a prosperous economy is planning to implement a reliable affordable health care system covering the entire population through a series of steps such as building up health care services in the rural area, encouraging participation in health insurance schemes and reducing the costs of medical services.

Sri Lanka too must take an example of the measures taken by the developed countries and further strengthen health care systems to build a healthy population that would not be dependent.

Adequate insurance schemes, reasonable pension schemes and revision of retirement age are some examples.

To be in readiness for the ageing population private sector has increasingly invested in health care reaching a wider sector of the masses.

A proper regulatory mechanism should be in place ensuring reasonable pricing of services and quality control mechanisms are in place.

Another issue is to avoid industrial disputes through good governance to ensure the services are not interrupted in the public sector.

In Sri Lanka despite the upgrading and equipping of most government hospitals there has been much controversy and concern over shortage, poor quality and high prices of drugs.

These shortcomings should not be allowed to expand to larger proportion at a cost to the people.

The National Hospital in Colombo has taken many genuine steps to improve the quality of health care and cleanliness through participation of voluntary bodies and the private sector.

The Friends of Accident Service is one such voluntary group that has been performing a yeoman service particularly during the conflict times when large number of casualties had to be brought in unexpectedly.