Appalling future scenario due to rapid demographic decline
Three major global credit ratings agencies have all come to the same appallingly dismal conclusion regarding the future of Korea Inc. They forecast that Korea will face its worst economic situation by 2050, as a result of its rapid demographic aging. They said that the looming crisis will result due to potentially weakened economic growth, paired with snowballing state debts, which are a consequence of a fast rise in fiscal spending on pensions and medical insurance coverage. They cautioned that the nation will be downgraded to junk status should it fail to press for reforms concerning aging-related policies as soon as possible.
The ratings agencies have thus far regarded "aging" as a mid-to-long-term factor, not an immediate one. Yet aging has emerged as a key factor in determining the state's credit in light of the growing impact it has on state debt amid the continued hikes of interest rates.
The agencies picked Korea as one of the most vulnerable countries among 81 major economies in the world, citing its unprecedented speed in aging. Statistics Korea, part of the Ministry of Economy and Finance, said that Korea's population will dwindle to 37.65 million in 2070 compared to its current level of 51.62 million. That translates to a demographic decline of about 27 percent during a 50-year period. Yet the proportion of elderly citizens aged more than 65, will continue to increase during the period, eventually accounting for 46.4 percent (currently at 17.5 percent), surpassing Korea's economically active population, aged between 15 and 64. This means Korea will become the oldest nation in the world, above Japan and Germany.
Worse still, Seoul's birth rate stands at only 0.78, less than half of the much-desired 1.59 figure, the average of the member states of the Organisation for Economic Cooperation and Development (OECD). Dramatizing this dismal scenario, renowned demographic scholar David Coleman of the University of Oxford foresaw that Korea would become the first nation to face the danger of extinction by 2075.
In a symposium hosted by the Korean Peninsula Population Institute for Future Wednesday, he said it would be very difficult for Korea to overcome its low birthrate, though it will be possible to some extent. "I have visited Korea four times so far, and it is surprising that Korea's birthrate is declining each time."
The decrease in the working population will negatively affect production and consumption, leading to a dip in national competitiveness. It will also result in a downgrading of credit, a drop in foreign investment and an economic recession. As Prof. Coleman put it, it is disappointing to see so little progress despite the government's previous measures, which have been designed to prop up fertility rates and the reforms of pensions and labor.
For starters, the national pension is expected to be depleted by 2055 or earlier. Despite the urgent need for pension reform, relevant parties have failed to make progress so far. Amid the drop in tax collection plus the snowballing trade deficit, the state's debt has grown at an alarming rate. The expected rise in the cost of welfare for senior citizens amid rapid aging, will see state debt increase more swiftly.
The Yoon Suk Yeol administration should seriously map out steps to provide opportunities for elderly people to work by, for instance, raising the bottom line of old age from the current level of 65.
The current method, of expanding government-funded jobs, will only increase state spending. Depending on the specific conditions facing enterprises, the extension of the retirement age should also be thought about. Most of all, it is high time to proactively discuss how to open the nation further by overhauling immigration-related policies.
We should seriously contemplate what Prof. Coleman pointed out regarding the nation's most problematic points such as its family-centeredness and patriarchy, the wage gap, the excessive work culture, the highly competitive nature of entrance exams and education.
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