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Wednesday, August 1, 2007

Ageing and Eastern Europe

The Budapest Business Journal is running an interesting story on a World Bank report on some of the implications of ageing in Eastern Europe. Among many other details I noticed this:

"The region's rapidly changing demography is a dramatic trend with potentially major economic and social implications" and is "proceeding at a pace not seen before for such a diverse group of countries"

The full report - From Red to Gray: The “Third Transition” of Aging Populations in Eastern Europe and the Former Soviet Union - can be found here.


Aging poses economic threat to East Europe

Rapidly aging populations will threaten economic success in Eastern Europe and the former Soviet Union if governments fall behind on welfare-state reforms and fail to promote high-value jobs, the World Bank said Wednesday.

People in the region will become among the world's oldest by 2025, and a mix of low birth rates, longer lifespan and fragile post-communist economies will likely force higher spending on health care, pensions and care for the elderly, the development bank said. The region's rapidly changing demography „is a dramatic trend with potentially major economic and social implications,” and is „proceeding at a pace not seen before for such a diverse group of countries,” a World Bank report said.

As East Europeans and Russians turn grayer, only Turkey and four small, ex-Soviet Central Asian republics will have the population growth to stay 'young countries' by 2025, with fewer than 10% of residents under age 65, the report said. Overall, the region was projected to lose 24 million people, with Russia shrinking by 17 million over the next two decades. The survey highlights how the post-communist nations of Eastern Europe, famously contrasted to the 'old Europe' of France and Germany by former US defense secretary Donald Rumsfeld, are getting old themselves. Japan and Western Europe have been getting older for decades, leading to the familiar crunch of a shrinking pool of workers to pay the taxes that finance welfare-state benefits for an aging population. But the pace of aging in Eastern Europe and the former Soviet Union is faster, and the continuing post-communist transition „makes the region's experience unique and especially challenging,” the report said.

By 2025, 20-25% of the people in nine countries - from Azerbaijan to Slovakia - will be 65 and older, according to the World Bank report, which used UN population data for its forecasts. Slovenia will have the oldest population among the 28 nations surveyed, followed by Croatia, Czech Republic, Bulgaria and Hungary, the report said. Slovenia, which adopted the euro this year in a mark of economic progress, will see its over-65 age group grow from 14% in 2000 to about 23% in 2025, falling between projections for Britain (20%) and Italy (26%), the report said. It expressed particular concern about the looming „expenditure shock” of long-term health care for the rising number of old people. „The key is to design delivery arrangements that are substantially less expensive than hospital services,” a summary of the report said. „To achieve this, it is necessary to recognize and support informal caregivers.”

Governments should also combat the labor-force crunch by raising the retirement age, encouraging flexible forms of employment and expanding financial markets to promote investment in high-productivity jobs, the World Bank said. In contrast, most demographers believe that child benefits and tax breaks that many Western European governments offer to couples with children have a 'negligible' effect on promoting births, the report said.

Worst placed to tackle the challenges are aging former Soviet nations and many countries in the western Balkans where post-communist reforms have lagged, the report said. In contrast, 10 East European nations that have joined the European Union since 2004, as well as Albania and Croatia, are well-placed if economic reforms continue at the present pace, the World Bank said. Whatever the policy mix, countries have a chance to avoid a low-growth future, the World Bank analysts said. „The danger lies in complacency,” they said.

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