CA. Bhanu Kandel

3D; demand, democracy and demographic dividend are the key factors in the economic development of a nation. A demographic dividend, also popularly known as ‘Population Bonus’ occurs when the number of people of working age is higher than the number of dependents (elderly and children). The ratio of the elderly and children to the working age population is known as the dependency ratio. A low dependency ratio indicates that potentially more people can be productive and contribute to the growth of economy, leading to unprecedented economic growth.

Nepal has been experiencing very rapid demographic changes in the last few decades as a result of transition from a high-mortality, high-fertility society to a low-mortality, low-fertility society within a relatively short span of time. This changeover in itself is an extremely positive outcome of the country’s development and something to be really admired. Looking at Nepal’s development in this standpoint, there are two major challenges that the country needs to be swiftly prepared for, that is rapid progress of the ‘ageing’ of the society; and the duration of the ‘demographic window of opportunity’ period.

According to National Planning Commission (NPC), as of 2015, 11.1 working-age people (the ages of 15 and 64 years) have been supporting one old-age person in Nepal. By 2050, 5.6 working-age people will need to support one old-age person, which is half of today’s ratio in another 30 years counting from 2020. By 2060, this ratio becomes 3.8 working-age people per old-age person, one-third of today’s ratio in another 40 years counting from 2020. This will only be possible if children today and subsequent generations to come are raised to become far more productive than today’s adults by the time they grow into adults themselves. This in turn necessitates prioritized investments in children today for their healthy and sound growth both physically and mentally.

In the areas where dependency ratio is in the middle range, the priority should be improving human capital by investing in youth’s education; while where the dependency ratio is sufficiently low, the highest priority should be to ensure the population remains productive by providing better access to employment. This could be achieved either through an active labor market policy or by rising investment in new jobs.

The demographic window of opportunity is a period of time in a nation’s demographic evolution when the proportion of the working-age population is particularly prominent. This occurs when the demographic architecture of a population becomes younger and the percentage of people who are able to work reaches its height. Countries that put the right policies in place and necessary investments to back them have been able to effectively take advantage of this opportunity and reap their demographic dividends in the form of accelerated human development and economic growth. That’s what today’s industrialized countries and Asian Tiger economies (including Singapore, Hong Kong, South Korea and Taiwan) have historically done.

An ageing society is defined as one where the percentage of people aged 65 years and older (also called as old-age dependents) accounts for 7 percent or more of the total population. When this proportion doubles (that is, 14 percent or more), the concerned society is called an “aged society.” Nepal will become an ageing society around 2028, another 8 years counting from 2020, and an aged society around 2054 another 34 years counting from 2020. It will therefore take 26 years for Nepal to transit from an ageing society to an aged society. This speed of ageing is very fast and more or less the same as that of Japan, which is one of the fastest ageing societies among the member countries of OECD. Japan went through the same transition process in just 24 years between 1970 and 1994.

Moreover, one way to measure the duration of this demographic window of opportunity is to calculate the number of years between the time when the percentage of the working-age population (15 to 64 years of age) vis-a-vis the dependent-age population (0 to 14 years of age, and 65 years and older) starts to increase. According to NPC, the demographic window of opportunity for Nepal will last for 55 years in total. It started around 1992, 28 years ago counting from 2020, and will begin to close around 2047 another 27 years counting from 2020. Based on this estimate, the country has so far passed more than half of its demographic window of opportunity period.

The not-so-pleasant surprise is that the total duration of 55 years for Nepal’s demographic window of opportunity is not fairly long compared with those of more affluent economies, such as 60.5 years for Japan, 55 years for Malaysia, 51 years for Taiwan, and 50 years for Hong Kong and South Korea. However, Europe’s demographic window lasted from 1950 to 2000 only where-as it began in China in 1990 and is expected to last until 2030. India has entered the demographic window in 2010, which may last until the middle of the present century. Much of Africa will not enter the demographic window until 2045 or later. This analysis of the demographic window of opportunity also shows the time-sensitive nature of the required policy decisions and actions for Nepal. The most burning issue; of course, is our very short remaining window of opportunity ahead of the expected demographic dividend.

The excessive pressure on the economy to cater the dependents will create a vicious cycle. Consequently, the increase in pension and healthcare spending will drain the investment on children’s and youth’s education resulting into decrease in skilled workers, reduce tax income; and inadequate pension funds and healthcare spending. As such, the demographic dividend is both an opportunity and a challenge for Nepal. If we fail to fully capitalize on our demographic dividend, the resulting chronic economic pressure will trouble us for many years to come.

To be precise, it’s already a high time to work on brain gain and to stop exporting the human capital; rather these should be utilized for nation building. Another key factor to seize the opportunity of the demographic dividend is to increase women’s participation in the labor force which will not only help to boost the economy, but also empowers women. Moreover, Nepal needs to invest in children on a priority basis now, particularly in such areas as health; nutrition; water, sanitation, and hygiene. This will help the country to take maximum advantage of favorable conditions in the remaining period of its demographic window of opportunity and cope with the challenges of the coming ageing and aged society. East Asian countries experienced their demographic dividend in the 1950s and 1960s as a result of heavy investment in their youth and expanded access to voluntary family planning. As a result, South Korea’s gross domestic product grew by 2,200 percent from 1950 to 2008.

To conclude, it’s time to blow a whistle for optimum exploitation of the available demographic dividend. This is not only because it is a wonderful opportunity to accelerate our economic growth, but also because failing to do so will be devastating. The demographic dividend will take no time to switch into demographic disaster. Hence, the policy makers needed to be fully prepared to reap the ongoing demographic dividend for the economic prosperity of the country.

(Kandel is a Senior Chartered Accountant)