Barbados and the rest of the developing world is entering uncharted territory with respect to dealing with the effects of a rapidly ageing population. In 2010, the United Nations projected the global population over the age of 60 would reach 1 billion by 2020 and almost two billion by 2050, representing 22 per cent of the world’s population. The proportion of individuals aged 80 or over is projected to rise from one to four percent of the global population between today and 2050. In ‘Population Ageing and Economic Growth’ by Bloom, Canning and Fink (2011) the authors state, “The elderly are not only growing rapidly in absolute numbers, but have also become substantially healthier. In a phenomenon referred to by demographers and health specialists as the “compression of morbidity”, the length of healthy old-age appears to be increasing.”
This dynamic has been debated in Barbados primarily between 2014-2016 with respect to the impact it would have on the ability of the National Insurance Service (NIS) Fund to continue benefit and pension payments using the current status quo. Barbados undertook a pension reform exercise during the first half of the last decade to address any fallout that might impact the long-term financial sustainability of the NIS. The ensuing actuarial assessment concluded that net positive contributions would persist for a considerable period of time. Following that, investment income would be expected to meet any shortfall in contributions, without the capital having to be impacted. Consequently, the fund is not in immediate jeopardy.
The intent is to expand that view and look at its socio-economic impact on the country, rather than merely the viability of NIS fiscal operations. Former Minister of Education Ronald Jones was infamously quoted to have made a tongue in cheek suggestion that the solution merely rest with the need to have a higher local fertility rate, as he could see clearly that the number of students being tested each year was in perpetual decline.
We already struggle with a 10 per cent unemployment rate, and like most Caribbean territories, a 25+% youth unemployment rate (15-24 age category). Demographic changes will make it increasingly difficult to continue to improve the income and standard of living of Barbadians through increases in the employment rate. Projections show that as a result of population ageing, the proportion of the working age (15 – 64) population will shrink over the coming decades, which will lead to an inevitable fall in the employment rate, further compounding our current fiscal and tax issues. The net point is that in as short a time as 30 years, given the prevailing mortality rate (8.6 per 1,000), Barbados will have more than 124,000 persons over the age of 65. Given the fertility rate (11.7 per 1,000) that will be almost double the number of persons in each other age category shown in the chart above. While population ageing is a worldwide phenomenon, Barbados is expected to age more rapidly than most other countries; Trinidad is the only Caribbean country aging faster.
As a result, while Barbados currently has a lower ratio of elderly to working-age population than most other countries in the Organisation for Economic Co-operation and Development (OECD), accelerated population ageing is expected to push our ratio above the OECD average by 2030. A higher fertility rate and higher levels of immigration could help slow population ageing but would not prevent it.
Population ageing is expected to exert additional fiscal pressures
In comprehensive trend models’ analysis using data from Canada which somewhat mirrors Barbados’ demographics minus the fiscal challenges and the United Kingdom, which is somewhat similar relative to debt to GDP; it has been found that through slower economic growth, population ageing is expected to reduce the growth rate of government revenues and so limit the capacity of governments to continue to finance public expenditure growth at rates as high as in the past.
At the same time, in the absence of cost control, population ageing is expected to affect the public finances of developing economies by putting upward pressure on public expenditures, notably for age-related programs such as health care and public pensions.
An important trend observed in advanced economies over the past four decades has been the steady rise in health spending as a share of GDP. As populations in these economies become older, these spending pressures are expected to intensify, compounding the ongoing trend.
Similarly, in many advanced economies, as large cohorts of baby boomers continue to reach retirement age, additional increases in public pension spending are projected over the next 20 years.
Just for a few minutes, I want all of us to look at the chart (below) that shows our current per capita health care spend. Let us then extrapolate that spend based on the first chart showing the age demographic. The issue becomes much clearer; our health care spend which has doubled in 15 years will now quadruple in the next fifteen years, as eight to ten people over the age of 65 suffer from at least one Chronic Non Communicable Disease (NCD).
The former Minister of Health John Boyce in a June 2017 address stated that by the year 2030, it is estimated that 86 per cent of all deaths in Barbados will be caused by non-communicable diseases (NCDs). Pan American Health Organization (PAHO) officials posit in the third edition of their publication Economic Dimensions of Non-Communicable Disease in Latin America and the Caribbean: Disease Control Priorities that more than 90 per cent of all deaths in the Caribbean today of persons under the age of 70 can be linked directly to NCDs. There is compelling proof that NCDs are a major and growing problem for low- and middle-income countries, and that they consume increasingly greater proportions of health care budgets. NCDs are not simply a by-product of higher incomes and declining infectious disease rates but are also a major cause of disability and ill health and the leading cause of preventable and premature mortality in the Americas. NCDs are responsible for significant out-of-pocket health expenditures for individuals and families, and substantial health outlays in national budgets.
The chart (below) shows a comparative analysis of the age demographic of Barbados, Canada and Guatemala. We are very similar to Canada in demographic but with significant capital constraints. Guatemala, which has significant capital constraint, does not have the same demographic issue. In Barbados, we have an ageing population that will put financial strain on our ability to finance the pension and social service programs that we currently enjoy. This ageing population will exert further pressure on the health care budget due to the unique genetic, diet and lifestyle fingerprint of the country that lends itself to high instances of NCD’s. More than 30 per cent of the population is currently being treated for an NCD. 25 per cent are listed as pre-diabetic particularly those under the age of 15.
Faced with an ageing population what should we do? The first imperative is to redouble efforts to boost productivity growth, which in a previous article was highlighted as our Achilles heel – that our workers can produce more and better goods and services and be better paid. To increase productivity growth, Barbados will need to continue to invest in the key drivers of productivity: innovation, human capital and business investment. These three drivers interact with each other to improve productivity. For instance, skilled workers using modern equipment with the latest technology complement and reinforce each other. While most of the investments in the drivers of productivity result from private decisions by individuals and businesses, the Government can strengthen its policy framework to encourage these investments.
We also have to find a way to convert that stubborn 25 per cent youth unemployment into meaningful labour force participation. Even if that is successful, it is not enough and our next step has to be a sensible and cogent immigration policy to grow our population at a sustainable rate while preserving our culture and values in the process. All this must be underpinned by a disciplined fiscal program that has latitude for growth, seeks creative options for pensions and health care, maintains the social services and has the elasticity to recover quickly from unexpected external shocks.