Africa-Press – South-Africa. South Africa has a limited window of opportunity to mitigate longer-term fiscal risks from an ageing population in the coming years.
While South Africa has a relatively young population, many of its youth are unemployed, resulting in a growing number of dependents on the state which, itself, is reliant on a very narrow tax base.
The National Treasury estimates that South Africa has around 20 years maximum to address this issue through rapidly increasing economic growth and employment.
At current rates, millions of South Africans risk never participating in the formal economy, having little opportunity to build wealth and contribute to the fiscus.
Put simply, South Africa has a growing number of ‘takers’ with a relatively small and flat number of ‘makers’ who positively contribute to the fiscus.
In the Medium-Term Budget Policy Statement (MTBPS), the National Treasury highlighted the long-term unsustainability of South Africa’s current economic trajectory.
Analysing South Africa’s fiscal risks, which centre around the country’s state-owned enterprises, a section was dedicated to the narrowing window of opportunity to mitigate longer-term risks from an ageing population.
“Demographic projections from Stats SA suggest that South Africa has a near-term window of opportunity to mitigate longer-term fiscal risk,” the Treasury said.
South Africa’s population is expected to continue its strong growth of around 1.6% per year over the coming decades, reaching 93.1 million in 2060.
“This shift presents a potential demographic dividend – a temporary period during which a larger share of the population is of working age, offering an opportunity to boost economic growth and fiscal resilience,” it said.
However, the Treasury pointed out an important issue – this has to be accompanied by job creation and productivity-enhancing reforms.
There can be no demographic dividend if a growing number of working-age individuals are unemployed and do not contribute to the economy and the fiscus.
Thus, as a growing number of people are unable to enter the workforce, the number of individuals reliant on the state for their livelihood, through grants and other means, is expected to rise.
South Africa already has over 28 million individuals receiving grants on a monthly basis, with around 9 million of those being on the Social Relief of Distress Grant.
Coming of age
The main threat to the country’s fiscus comes in the form of an ageing population, which has hobbled many Western and Asian economies in recent years.
These ageing societies require much more assistance from the state in the form of healthcare and pension payouts, which increases the pressure on the workforce.
In effect, as a society ages, an increasing number of individuals become reliant on a smaller workforce, putting increased pressure on economically active people.
South Africa is not immune to these trends, despite the country’s relatively young population, with trends indicating it could reach an inflection point within the next two decades.
Combined with the growing number of grant recipients, this will result in a growing share of the population being classed as dependents and put immense pressure on state finances.
The National Treasury projects the total dependency ratio, which compares the number of children and elderly population to the workforce, will rise from 52 dependents per 100 people to 54 dependents by 2060.
This shows that South Africa is already in a difficult position, with over half of the population being dependents in some form.
The old-age dependency ratio, which compares the number of people over 65 to the workforce, is expected to rise from 9.6 per 100 to 19.6 by 2060.
This will drive increased demand for healthcare, pensions, and social assistance, which will translate into immense pressure on the fiscus.
The National Treasury said that these long-term dynamics do not pose immediate fiscal risks, but they do highlight a growing issue in South Africa.
In particular, it emphasises the importance of economic growth, productivity, and employment creation to sustain an adequate revenue base for the government to fund its operations.
Sustaining fiscal health will also depend on early policy adjustments that account for demographic changes, it said in the MTBPS.
The Treasury said htat long-term fiscal modelling highlights that the next two decades provide a crucial opportunity to benefit from a demographic dividend before ageing pressures intensify.
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