TIRANA, Dec. 2 – Shrinking populations pose a formidable fiscal challenge, placing public finances of countries under pressure on increased spending on pensions and health, reduce economic growth and make it more difficult to reduce public debt as a share of GDP, according to a research paper published on the IMF website.
Albania, which is experiencing for the first time the beginnings of the population’s ageing has already undertaken reforms in the pension system by approving a gradual increase in the retirement age, but declining fertility rates and immigration remain serious threats.
“These developments would place public finances of countries under pressure, through two channels. First, spending on age-related programs (pensions and health) would rise. The fiscal consequences are potentially dire: such spending increases could lead to unsustainable public debts, require sharp cuts in other spending, or necessitate large tax increases that could stymie economic growth,” research shows.
“Second, declining populations can reduce economic growth and, if not accompanied by a commensurate reduction in interest rates, make it more difficult for countries to reduce their public debt as a share of GDP,” adds the report.
Life dynamics nowadays has brought down fertility in Albania, from the highest total fertility rate in Europe to the current level of 1.7 children per woman, well below the replacement level that is required to sustain the population size.
The 2011 census shows Albania’s resident population dropped by 8 percent to 2.8 million people compared to a decade earlier due to lower fertility rates and high immigration. Prospects are pessimistic as the population is expected to undergo another decline in the next few decades.
“Given the magnitude of the fiscal challenge, reforms should start now but be gradual. A gradual pace of reform to pension and health systems would help to spread the burden across generations. There is greater urgency to move on health care as countries have been slow in implementing reforms in this area,” says the IMF research paper.
Albania’s public debt has already climbed to a record high of 72 percent while higher taxes are failing to produce more income because of the ongoing shrink in population with the latest wave of dozens of thousands of asylum seekers, mainly to Germany.
