Fitch cites strong labor force growth, positive youth dependency ratios
Divergent demographic trends in Emerging Asia (EM Asia) affect the countries’ long-term sovereign rating trajectories, debt watcher Fitch Ratings said, pointing out that the Philippines is among the potential beneficiaries of future demographic dividends.
In its “Asia-Pacific Sovereigns Chart of the Month” report, Fitch provides an illustration of which EM Asia sovereigns are most likely to benefit from supportive demographic profiles.
The report said a rapid rise in labor force can ultimately translate into bigger growth in gross domestic product (GDP), particularly if combined with improving productivity.
High ratios of youth dependency can be taken as a leading indicator of labor force growth as it represents a future stock of individuals that will enter the labor force, it said.
Similarly, low female participation rates represent an untapped source of future labor force expansion even in the absence of a growing population base, the report said.
“By these metrics, the Philippines, Bangladesh and Mongolia stand out positively because of their strong labor-force growth rates and high youth dependency ratios,” it said.
India was mentioned for its low female participation rate, while Sri Lanka, Vietnam, Thailand and China stand out negatively with some of the lowest labor force growth rates and youth dependency ratios.
Sri Lanka is the only country to report a declining labor force, a figure influenced by net migration trends, it said.
Meanwhile, Fitch said the fiscal positions of Thailand, Sri Lanka, China and Vietnam are mostly likely to be hurt by adverse demographic trends.
The ratings agency regards high old-age dependency ratios as one of the most important indicators of the fiscal costs of ageing.
“One of the most significant contributors to ageing-related costs is government health expenditure,” it said.
In addition, the report said government debt levels also provide an indication of which sovereigns have more room to accommodate the fiscal costs of ageing.
“Thailand, Sri Lanka, China and Vietnam stand out with the highest old-age dependency ratios in the region,” the report said.
Government health expenditures in Thailand, China and Vietnam have increased, relative to total government expenditures, to account for evolving demographic trends, with perhaps more to come, it said.
Health expenditures in Sri Lanka are seen low relative to peers, and have actually decreased—a trend, which the report said, may need to reverse to address its adverse demographic profile.
Sri Lanka and China have less fiscal headroom to address the impact of ageing, whereas Thailand holds the lowest government debt stock, Fitch added.