1. Long-term spending pressures arising from demographic changes
Workshop Medium-term Expenditure Planning for National Sustainable Development
Long-term spending pressures arising from demographic changes
Iris Claus
3 November 2015
Nadi, Fiji

2. Population trends … vary across the region and over time.
Projections assume medium fertility.
Source: United Nations
Population trends
Migration
Changing Demographics
Fiscal implications
Discussion points

3. Declining populations
Population trends
Migration
Changing Demographics
Fiscal implications
Discussion points
More recently population numbers have been stable or declining except in Nauru, Marshall Islands and Samoa.

4. International migration
Population trends
Migration
Changing Demographics
Fiscal implications
Discussion points
Outward migration is contributing to declining populations.
The net migration rate compares the difference between the number of persons entering and leaving a country during the year per 1,000 persons (based on mid-year population).

5. Internal migration
Population trends
Migration
Changing Demographics
Fiscal implications
Discussion points
The proportion of people living in urban areas in small Pacific Island states increased from 22% in 1960 to 37% in 2014
… suggesting important internal migration.
Urban population refers to people living in urban areas as defined by national statistical offices. It is calculated using World Bank population estimates and urban ratios from the United Nations World Urbanization Prospects.

6. Changing demographics
Population trends
Migration
Changing Demographics
Fiscal implications
Discussion points
Age dependency is rising and child dependency is falling except in Nauru and Samoa.
Child dependency = Children aged 0 to 14 / Working age population (aged 15 to 59)
Aged dependency = People aged 60 plus / Working age population

7. Changing demographics
Population trends
Migration
Changing Demographics
Fiscal implications
Discussion points
The proportion of working age population is relatively stable.
The decline in child
dependency is largely due to a falling fertility rate and outward migration.
The rise in age dependency is mainly due to increased life expectancy and maybe retired migrants moving back.

8. Fiscal implications
Population trends
Migration
Changing Demographics
Fiscal implications
Discussion points
Declining child dependency means less education spending
… and future taxpayers.
Rising age dependency means raising health care costs.
Old age pension payments may increase if the eligibility age for public pensions does not rise with life expectancy.
Education and health expenditures are relatively large.
Changing demographics need to be monitored and incorporated into budgets.

9. Education expenditures
Population trends
Migration
Changing Demographics
Fiscal implications
Discussion points
… are relatively high in Marshall Islands, Palau and Samoa.
Continued internal migration may lead to further economies of scale
… if less schools and teachers are needed because people moved to
areas with already existing schools
… and education services can be scaled back.

10. Health expenditures
Population trends
Migration
Changing Demographics
Fiscal implications
Discussion points
… are relatively high in Pacific Island countries except in Cook Islands.
They will increase further with population ageing.

11. Health expenditures
Population trends
Migration
Changing Demographics
Fiscal implications
Discussion points
… can be expected to rise further due to the high prevalence of obesity in the region.

12. Direct costs of obesity
Population trends
Migration
Changing Demographics
Fiscal implications
Discussion points
Direct costs include outpatient and inpatient health services (including surgery), laboratory and radiological tests, drug therapy.
In the United States, per capita medical spending for obese individuals in 2006 was estimated percent higher compared to individuals of normal weight.
prevention-source/obesity- consequences/economic/

13. Indirect costs of obesity
Population trends
Migration
Changing Demographics
Fiscal implications
Discussion points
Indirect costs are “resources forgone as a result of a health condition”:
Value of lost work due to short-term absences, work at less than full capacity, long-term disability, premature death;
Higher life insurance premiums;
Obesity has been associated with lower wages and lower household income.

14. Discussion points
Population trends
Migration
Changing Demographics
Fiscal implications
Discussion points
What are the key geographic and demographic characteristics of your country?
What are the population trends in your country?
What expenditures are likely to be affected by changing demographics in your country?
Do you account for changing demographics in the budget forecasts?
If not, how could you account for them?
What additional data would you need?
Who should be responsible for forecasting the fiscal impact of demographic changes?