Rio de Janeiro, April 6, 2011 – Brazil is in the midst of a profound socioeconomic shift as the country’s population is moving from being relatively young to predominantly elderly. According to a World Bank report issued today, the country can take advantage of this transition to foster economic and social development and to avoid future social, fiscal, and institutional bottlenecks.
The report, entitled “Becoming Old in an Older Brazil,” was released at a seminar sponsored by the Brazilian Development Bank BNDES in partnership with the World Bank in Rio de Janeiro, with the participation of BNDES President Luciano Coutinho and World Bank Country Director, Makhtar Diop.
“Rather than merely adapting to demographic change, Brazil has all the required conditions to use this as a catalyst for its development. With appropriate policies and planning, it is possible for the country to develop as its population ages,” said Makhtar Diop. “Older populations are usually associated with more developed countries, and Brazil is definitely heading this way.”
Number of years taken for the elderly population (65+) to increase from 7% to 14% of the total population
In Diop’s view, while an aging population poses a challenge for any country, Brazil is also grappling with the speed of the change, which is occurring at a much more rapid pace than it did in developed countries. The elderly population will more than triple over the next 40 years, jumping from under 20 million in 2010 to roughly 65 million in 2050, or almost 50 percent of Brazil’s population.
The dramatic shift in the population’s profile will exert pressure on a number of institutions, such as the social security, health and education systems, and could create bottlenecks in growth and the country’s capacity to fund various social services.
For example, the portion of per capita public transfers to the elderly population relative to the portion channeled toward children is currently much greater in Brazil than in any other OECD and Latin American country with similar social protection systems. Shifting demographics will exacerbate this disparity, leading to skyrocketing deficits. Without the 1999 and 2003 reforms, social security benefits would have jumped from 10 percent of GDP in 2005 to over 37 percent of GDP in 2050, owing solely to the increase in the number of retirees.
However, according to Michele Gragnolati, the principal author of the study, the advantages and benefits offered by the demographic shift far outweigh the potential losses. “From this point on through 2020, Brazil will experience what is known as the demographic bonus – the period during which the working population is much bigger than the dependent population. The country could boost its per capita GDP by up to 2.48 percentage points during this period. However, this enormous dividend is not a given; it depends on institutions and policies that will transform the demographic changes into growth.
The study notes that the current socioeconomic model, developed in a context of a predominantly young population, widespread poverty, fledgling institutions, and high inflation, tends not to harness the benefits derived from the dividend. For example, by placing emphasis on public transfers to the elderly, the model was very effective at reducing poverty and inequality, but has led to expenditures comparable to those of the OECD countries, although Brazil’s age structure is still relatively young. “The result is lower investment capacity in the age groups that will soon be responsible for supporting the country’s growth and benefits for the elderly, children, and other dependent age groups,” stated Gragnolati.
In 2005, total public expenditure on education, health, and social security amounted to 17.7 percent of GDP and without further reforms these expenditures could climb to 31.9 percent of GDP by 2050. The sustainability of public accounts is lending urgency to the need to find ways to reduce or fund the fiscal expenditures associated with the population’s age increase and to encourage higher savings and stimulate growth.
According to the report, the demographic shift will also highlight opportunities as public expenditure changes. For example, between 2005 and 2050, the school age population will fall from 50 percent to 29 percent, owing to the decline in fertility. This will free up resources for other initiatives, such as enhancing the quality of and expanding access to early childhood education. In the view of World Bank specialists, investments in the sector are particularly important in order to boost productivity and support the ever-growing size of dependent groups.
The report also suggests that an aging population can lead to higher aggregate savings in Brazil if incentives are adopted. This could make boost capital accumulation and increase overall income in the economy, a situation that would deviate from the usual pattern expected in aging developing countries. However, the needed institutional changes are difficult to negotiate with society and the periods of transition are long.
In Diop’s view, the altered balance and gradual aging process can help Brazil derive benefits from the bonus with less drastic reforms in the social security, health, and education systems. “Those who will be elderly in 2050 are currently joining the work force, and the current rules are influencing their long-term decisions. It is critical for them to have the proper institutional, economic, and social context to make the best decisions for themselves, for future generations, and for the country.”
The World Bank has provided more than US$ 7 billion in funding for education, health, and social protection programs in Brazil, including the Bolsa Família program, in which US$ 772 million were invested to boost the registration of beneficiaries and strengthen capacity to implement the program.