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Chart of the week: Global demographics

15 January 2021: This week’s chart is on demographics, highlighting the major differences in the age structure of populations between continents and the different challenges this presents for managing public finances.

Contrasting age structures present very different challenges for public finances around the world. The contrast between Europe, with 26% of its population under the age of 25, and Africa, where 59% have yet to reach their quarter century, is especially marked.

These differences in demographics provide extremely different contexts for the public finances of the countries in each region. 

For example, most countries in Europe and North America are seeing more people live longer, which is pushing up the costs of pensions, health and social care. This has been accompanied by a decline in the relative proportion of working age individuals (the people that typically pay the most in taxes!) and sizeable accumulated debts exacerbated by the coronavirus pandemic). 

As a consequence, difficult choices on taxation and the level and quality of public services will need to be made over the next few years. Decisions taken in previous generations, for example on whether to set aside and invest assets to fund public and public sector pensions, will have a big impact in how radical those decisions will have to be and how constrained governments will be in pursuing their policy priorities.

Many countries in Asia and Latin America (with the notable exception of Japan) are a generation or so behind. However, they are starting to see some of the same issues as older generations start to live for much longer periods in retirement. The financial pressures of an ageing demographic are only going to grow significantly over the coming decades, just as lower birth rates feed through into proportionately smaller working age populations. Again difficult decisions will need to be made, although some governments do have a longer time period in which to put in place or strengthen funding arrangements ‘ahead of the rush’ for pensions, health and social care in retirement.

For many countries in Africa, the idea of funding the costs of pensions, health and social care in fifty or so years’ time is likely to seem a low priority as they face the more immediate challenges of education and employment for example. But, as birth rates come down across Africa and life expectancy increases, many of the same issues currently faced by developed economies will emerge. 

Many governments will be thinking as to how even a relatively small change made now can add up over a period of decades to make a substantial difference in the quality of life of citizens in retirement and in the strength and resilience of their national public finances. 

Debates about public finances often tend to focus on the day-to-day allocation of resources between public services and the minutiae of tax rules. But it is important to think about the longer-term drivers too – with demographics being one of if not the most significant.

Percentages by age group 0-24 25-49 50-74 75+
Europe  26%  34%  31%  9% 
North America  31%  33%  29%  7% 
Asia  39%  36%  22%  3% 
Latin America & Caribbean 40%  36%  20%  4% 
Africa 59% 30% 10% 1%