Long-term impact of population ageing on Sri Lanka’s public finance

Abstract

Introduction Population ageing is a major socioeconomic challenge faced by Sri Lanka during recent years. The United Nations’ forecast of the age structure transition of Sri Lanka from 2015 to 2050 shows an increasing share of the aged population who are 60 years and above, from 13.9 per cent to 28.6 percent (United Nations, 2015). The old age dependency ratio would rise from 14.1 in 2015 to 37.7 in 2050. When compared to other countries in the region, Sri Lanka is foremost as a society with a rapidly ageing population (Siddhisena, 2004). Accordingly, policymakers are confronted with two conflicting objectives: to develop socioeconomic systems which provide economic security to the increasing elderly population, and to sustain economic growth in the long-run while coping with the ageing population. Success in achieving these objectives depends on right and effective policies implemented when required. The study focuses on the sustainability of public finances in Sri Lanka when increasing public expenditure due to elderly population. According to King and Jackson (2000), increases in elderly population do not lead to negative fiscal consequences. Visco (2001) examined the fiscal impact and sensitivity of age related expenses up to 2050. Similar to Jackson’s (2000), Visco’s study noted that ageing has an impact on public finances, but whether it would be fiscally sustainable had not been analyzed. Narayana (2012) has analyzed whether ageing of Indian population has a long-run bearing on public finances from 2005 through 2050 using Miller’s Budget Forecasting Model and National Transfer Accounts. He concluded that ageing population is not a huge burden on India’s public finances. The study by De Silva (2007) assessed long-term demographic dynamics of the Sri Lankan population from 2001-2081, and concluded that Sri Lankan population would face major changes in its age structure in the coming decades.