David Jessop's– The potentially destabilising effect of demographic change

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    I read this article and wanted to share it. Written by David Jessop, it appeared in the Daily News and I traced its osurce to https://www.caribbean-council.org/potentially-destabilising-effect-demographic-change/

    It is worth your read.
    Last month, Moody’s, the credit rating agency, published a report that indicated the potentially negative economic and political implications of demographic change in the Caribbean and Central America. It suggested that if government and the private sector do not make significant improvements in education, health care and other social determinants, many nations will struggle to remain competitive, particularly after 2050.

    The report’s findings were amplified just over a week ago in a webinar hosted by Marla Dukharan, one of the region’s leading economists, and Moody’s Assistant Vice President, the analyst, David Rogovic, who in an on-line dialogue made clear the policy issues that needed to be addressed.

    Moody’s research contained potentially alarming statistics and tables that pointed to several critical and so far, largely unaddressed long-term policy challenges facing the region.

    Put simply, it indicated that although declining, the Caribbean still had the highest net outward migration in the world and the highest age dependency ratio between retirees and citizens who work. The report also indicated that not only were very large numbers of the most highly educated and productive young people in their mid-twenties, and especially women, leaving the region mainly for the US, but that the Caribbean’s working population was diminishing.

    The webinar additionally indicated that the replacement rate by the old for young in some Caribbean nations such as Barbados is very high, and that the region’s average age growth is accelerating compared with Central America, so that by 2050 one quarter of the Caribbean population will be over 60 and closer to 80 years old.

    What this means is that the spending burden on government and the private sector is set to increase incrementally and that fiscal reform and structural change will be required to ensure economies remain competitive.

    The exchange between Marla Dukharan and David Rogovic went further. It indicated that the economic future of some parts of the region could be in doubt without a fundamental change in thinking about the scope and availability of education provision, ensuring wage equality for women, the role of new technology in development and government, the rational delivery of social welfare programmes, addressing crime, and the nature of the future relationship with the Diaspora.

    The alternative, they suggested, would be cuts to pensions, and a further deterioration in public health care and education.

    Paradoxically, the strength of the Moody’s report was that it did not make recommendations. As the agency points out, demographics are a secondary force in shaping credit markets, so their study should be seen as an adjunct to the credit ratings they and others provide commercially to enable investors to take longer term decisions about a country.

    What Moody’s well-researched, statistically-based and accessible report does is explode the myth perpetrated by some governments about their capacity to continue to meet the demands of economic growth, the young and the aging through a ‘business as usual’ approach.

    Focussing on the ten Caribbean countries and five Central American nations which it provides ratings for, the report suggested that apart from improving social and human capital indicators, there are steps that governments might take to improve their sovereign credit profiles. Moody’s indicated that among the positive responses governments might make to address demographic change were: encouraging inward migration of those of working age or with particular skills; attracting better off retirees from other nations able to purchase retirement services and health care; the introduction of electronic government; and innovative approaches to income redistribution.

    The ratings agency also observed that while outward migration resulted in relatively stable flows of remittances which supported domestic consumer demand and growth, this exposed the region to external shocks and the potential tightening in immigration policy in receiving countries.

    What Moody’s makes clear is that the Caribbean is on a wholly predictable but unsustainable path. Its report demonstrates that policy makers must find new ways to respond and reshape policy if there is to be any hope of delivering long-term economic growth and meeting future citizen demand across the demographic spectrum.

    Speaking about this, Marla Dukharan says that she believes that the importance of the report is that it touches on many often-overlooked but important issues. Apart from demonstrating challenges not typically associated with sovereign credit ratings, it indicates, she says the key sources of Caribbean vulnerability.

    “We usually think about this in relation to external forces such as climate change and trade wars driving socio-economic underperformance, or internal factors such as institutional weakness, fiscal irresponsibility, and corruption. But rarely do we link shifting demographics as a source of vulnerability”, she notes. “This report shows us just how this is linked much more closely than we may have imagined”.

    She believes that policy makers need to address institutional weakness at a fundamental level. “If we can tackle crime on a regional scale, gender inequality, and wealth and income inequality, it should be possible to mitigate some of the vulnerability”, she observes.

    Some governments, most notably Jamaica and Barbados, in part encouraged by the IMF, are working in this direction. Cuba too has recognised the potential threat that demographic change poses, forming a government commission responsible for addressing population growth: something that seems not to exist elsewhere in the region.

    Unfortunately, most Caribbean governments and politicians fail to look past their electoral horizon to recognise the fundamental nature of the social and economic decisions that the unstoppable force of demographic change requires.

    It is not often a report appears that demonstrates so clearly the powerful factors at play beneath the surface in the Caribbean and the significant policy issues that need to be addressed.

    Moody’s report and the subsequent webinar made clear that there is a pressing need to break through the complacency and political inertia that grips much of the region. Together they indicated that there is a pressing need for a consensus to form on the steps needed to address the potentially destabilising effects of demographic change.

    David Jessop is a consultant to the Caribbean Council and can be contacted at david.jessop@caribbean-council.org
    Previous columns can be found at http://www.caribbean-council.org

    The views and opinions expressed in the View from Europe are those of the author and do not necessarily reflect those of The Caribbean Council.

    Justin Moorhead

    The implication of this article is significant.

    Three recent articles by Lloyd Garden posted in the Archive section of underthemarkets talk to the importance of thoughtful planning and collaborative action if we are to confront impending challenges and pursue a more sustainable future.

    Environmental changes will make these island communities less attractive as places to build careers and raise families.

    Those who migrate are most often the better prepared and more capable of adapting to a new and competitive environment. In short the best prepared and those more able to compete are the first to leave. That loss denies essential human resources required by the community from which they emigrate. That has dire implications for the future of these small island communities.

    Once you read Lloyd’s articles, revisit this one. It’s worth the few additional minutes of your time.

    Lloyd Gardner

    The issue of vulnerability of Caribbean countries based on their demographic characteristics is complex and very troubling. The issues are not, or even mainly, about savings and investment potential. Having a population made up mainly of the old and very young is having a population that is extremely susceptible to even minor shocks. If the aging population also displays high levels of health disparities, then the personal and public investment in health care can be relatively high, reducing the resources available for other matters.

    Though related, linking demographic issues to a general idea of out migration should not be separated from geopolitical considerations. The “positive” government responses suggestion by Moodys ignore, I suspect deliberately, the destabilizing impact of trade and security arrangements of small and developing states with powerful nations. Take for example the recruiting practices in the Caribbean by the more developed countries. They openly recruit, not just the better prepared, but a wide range of skill sets, and usually persons with a decade or two of experience. Whether those persons are doctors, nurses, or truck drivers, they represent years of investment and accumulated experience. Just as important, for the professionals, regardless of occupation, they represent the next generation of senior managers and entrepreneurs.

    This recruitment practice means that while Caribbean countries are told by international agencies and trading partners that they do not have a sufficiently large pool of expertise to be competitive or to attract significant private external investment, that pool of expertise is consistently and systematically being depleted by the very countries that are supposedly supporting the development efforts of small countries/economies.

    The non-independent states in the Caribbean (colonies/dependent territories/overseas departments) also have demographic challenges, but the constraining forces are somewhat different.

    The foregoing is not to dismiss the inadequate policy responses of governments to the demographic challenge, but the situation, and potential solutions, require more in-depth and nuanced examination than presented in the Moodys report.

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