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publication June 22, 2021

The Macroeconomic and Fiscal Impact of Aging in Thailand

Macroeconomic and Fiscal Impact of Aging in Thailand

Key Findings

Thailand¡¯s population is aging rapidly. Its demographic shift is much more advanced than its level of income suggests.

  • Projections show that long-term growth is likely to decline between 2020 and 2050, continuing the current downward growth trend.
  • Demographic changes account for over half of the projected decline in long-term growth. This projected decline is due to a low fertility rate and aging leading to a decline in population growth and the size of the working-age population.
  • Some countervailing effects such an increase in the female labor force participation rate or improvement in human capital can mitigate or even offset the negative impact of aging on long-term growth.
  • The long-lasting effects of the COVID-19 pandemic could lead to a lower long-term growth path if it leads a decline in investment, a deterioration of human capital, or a contraction of global trade.
  • The private saving pattern in Thailand is positively related to the speed of aging.
  • The conditional forecast shows that private saving will likely rise over the next decade and a half and fall thereafter. It is projected be higher in 2050 compared to 2019.
  • The combined fiscal costs of the Civil Service Pension Scheme, the Old Age Allowance, and health care are projected to rise from 6.2% of GDP in 2020 to 11.3% by 2060.

The terms of mitigating the negative impact of aging on long-term growth policy measures should aim both to increase the size of the labor force and to increase its productivity. The results show that urgent, comprehensive, and sustained reforms are needed in Thailand to provide adequate pensions in the long term in a sustainable fiscal framework. While the country has a network of social protection programs, they are in need of reform to increase adequacy and fairness, among other things. Thailand therefore needs three sets of broad reforms:

  • Labor market reforms: these may help sustain long-term growth through a temporary boost in the number of employed, which will improve fiscal sustainability through a number of channels.
  • Revenue and expenditure reforms: while there may be inefficient expenditure, this may be exhausted soon as a source of fiscal space. As Thailand¡¯s tax-to-GDP ratio is well below that of other emerging markets, the scope to increase tax revenue is more promising to maintain fiscal sustainability.
  • Finally, it is important to look at each of the social protection, pension, and long-term care programs and assess whether they provide adequate benefits, what the ideal funding source should be, and how to make them sustainable in the long term.

For all three areas of reform, there is also a clear case for starting these reforms as soon as the post-COVID recovery has taken hold, as the costs of adjustment will increase over time. The accompanying reports provide detailed recommendations on reforms in the labor market, , pensions, and long-term care.