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Business News of Saturday, 15 August 2020

Source: 3 News

Countries with aging population struggling for stimulus – IMF

The International Monetary Fund (IMF) has noted that countries with aging populations are less likely to secure stimulus to support their economies, compared to economies with younger populations.

The Bretton Woods institution noted that in the midst of the current COVID-19 pandemic, policymakers around the world are undertaking fiscal stimulus—a combination of spending increases and tax reductions—to support their economies.

Even before the present crisis, the IMF said the importance of fiscal policy has been increasing, with monetary policy constrained by near-zero interest rates.

It said in an analysis published by two of its staff, Jiro Honda and Hiroaki Miyamoto, that “we find that fiscal policy isn’t as effective in boosting growth in economies with older populations”.

It added: “On a more granular level, an aging economy behaves this way because its labor force isn’t growing, while its public debt tends to be high, and, therefore, fiscal stimulus has weaker effects on private consumption and investment.

“This is because the working age population is more likely than retirees to benefit from fiscal stimulus through effects such as increased corporate hiring. Furthermore, many pensioners are on fixed incomes whose consumption remains steady or even declines over time. In addition, population aging could reduce potential growth (by lowering labor input and productivity), with which fiscal stimulus may induce less private investment. The ‘older’ the economy and the higher its debt, the less impact fiscal stimulus has on growth.

“These findings complement existing observations that countries with aging populations have relatively low growth and higher public debt. Yet our findings are especially important because old-age dependency ratios have been rising for several decades and are projected to increase further.

“Within the next 30 years, more than 20 countries across the world would exceed the old-age dependency ratio of 50 percent—an unprecedented level in global history—with some even reaching 70 percent.”

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