Academic journal article Journal of Southeast Asian Economies

Financing Social Protection in Developing Asia: Issues and Options

Academic journal article Journal of Southeast Asian Economies

Financing Social Protection in Developing Asia: Issues and Options

Article excerpt

I. Introduction

Several developments have contributed to the emergence of social protection as an important public policy issue in Developing Asia (DA). (1) These include demographic trends portending: rapid ageing of the population; labour market dynamics, particularly the increasing informalization of labour contracts and significant internal and cross-border migration; increasing urbanization; (2) and regional and global integration, accompanied by a high degree of income and wealth inequality.

Higher expectations concerning retirement income security, especially by the younger generations, accompanied in some countries by greater political contestability are also contributing to the need to accord higher public policy priority to social protection.

The above developments are likely to require devoting a higher share of society's output to social protection. This will be shared in varying degrees between the public and private sector. The public sector share will require increased budgetary support and therefore fiscal space. Households and individuals will also need to increase their allocation of lifetime income to financing old age.

There is therefore a need in DA for social protection systems that provide adequate income security, are economically and financially sustainable, and are robust (i.e., can withstand macroeconomic and other shocks). This paper focuses on the issues and options for financing social protection in DA. It also explores how efficiency gains could help reduce expenditure requirements for financing a given bundle of services for the elderly. For the purposes of this paper, the term social protection is used to denote healthcare, pensions and, to a lesser extent, work injury compensation programmes in DA.

The rest of the paper is organized as follows. An overview of demographic and labour market dynamics in DA and their implications for social protection is provided in section II. This is followed by a review of the issues and options in financing social protection in section III, which also includes a brief discussion on how efficiency gains could be obtained from greater professionalism through design and service delivery innovations, and by enhancing capacity to obtain resources from nonconventional sources. Section IV provides concluding remarks. II. II.

II. Demographic Trends and Labour Market Dynamics

II.1 Demographic Trends

Demographic trends in DA are summarized in Tables 1A-C, on the basis of which the following observations may be made.

First, the rapid ageing of the population in DA is evident from the increasing share of those above sixty and eighty years old. Between 2011 and 2030, DA's share in the global population is expected to decline slightly. However, its proportion of the global aged (above sixty and eighty years) will rise sharply (from 39.4 per cent to 46.4 per cent, and 28.8 per cent to 35.3 per cent respectively).

Second, by 2030, China, Indonesia, Thailand and Vietnam will have the largest share of the population above the age of sixty and/or eighty, relative to the other countries in DA. The sheer size of the elderly population will be unprecedented in the populous countries of China, India and Indonesia, which will more than double between 2015 and 2030 (from 280 million to 580 million). This implies that the manner in which these three countries address the financing (and other challenges) in coping with the ageing population will have a major bearing on how DA as a whole addresses demographic-related challenges.

Third, amongst DA economies, China, Indonesia, Thailand and Vietnam currently exhibit total fertility rates (TFR) (3) below the replacement rate. This is expected to decrease further, and by 2030 the TFR in most developing Asian economies will be lower than the global TFR. Fourth, for the 2010-15 period, life expectancy at age sixty in DA countries is projected to be lower than the global average (with the exception of Vietnam, where it is greater for both males and females, and Thailand, where it is greater for males). …

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