Will Vietnam Grow Old Before it Gets Rich?

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Will Vietnam Grow Old Before it Gets Rich?

A closer look at the country’s aging population and what that means.

Demography is destiny, Auguste Comte once claimed. The Vietnamese government, one imagines, hopes the French philosopher was wrong and fate can be altered, because the country’s demographic destiny doesn’t look good.

It is often said that Vietnam has a young population, a suggestion often taken by economists as an indication that financial investment is secure. This is, however, not strictly true (at least for the coming decades). Presently, Vietnam’s average age is 32 and about 55 percent of the population is below the age of 34. As for those in the 15-64 age group, what is often considered of “working” age, the percentage rises to 68, considerably higher than at the end of the last century, and higher than in many other nations in Southeast Asia.

However, the number of younger people, those under 15, has been in decline for decades. Today, it stands at 23 percent of the population, compared to almost 40 percent in 1989. Furthermore, birth rates have plateaued at around 1.95 births per woman since the aughts, compared to as much 5 births per woman in 1980, and 3.55 in 1990. What this means is that Vietnam’s working age population is set to decline in the coming decades and, as a result, this will “probably be a drag on per capita growth between 2020 and 2050,” an IMF blog post stated this year.

As shown by a helpful chart produced by the IMF (found here), Vietnam’s working age population peaked, years ago, when per capita incomes were low. These were almost half of those in China, a third in Thailand, and as almost a tenth of wages in Japan when their working ages peaked. Put simply, “Vietnam is at risk of growing old before it grows rich,” as the IMF phrased it.

The World Health Organization now considers Vietnam to have one of the world’s fastest aging populations in the world. At the moment, the elderly population hoovers below 4 percent of the country’s population, which equates to about 10 million people over the age of 65. By 2030, however, this is expected to rise to almost 7 percent of the population, and more than 10 percent by 2050. Added to this, Vietnam now has the second-highest life expectancy in Southeast Asia (75 years).

The major question, then, is whether the ruling Communist Party can do anything to alleviate the future difficulties that come with an aging population and a contracting number of workers, which includes higher state expenditure on health care and pensions, lower tax revenue, and a decline in economic output.

The Ministry of Health has developed an action plan for 2017 to 2025. According to the plan, all elderly people will have health insurance cards by 2025. The government has also made some noise about an aging population not being too much of a concern since the young in Vietnam, it says, care for the elderly, alleviating the state of many of its responsibilities for geriatric care.

However, as is now known in Japan and Thailand, two countries also with aging populations, traditional ways of caring for the elderly are fading. Chiefly, this is because of urbanization (now at an annual rate of 2.59 percent in Vietnam) and the subsequent living arrangements of modern life, meaning people tend to live with their spouses and young children, not parents or grandparents. So, in the end, the state will likely have to front most of the bill.

Some reforms have been suggested. Vietnam could raise the retirement age, currently 60 years old for men and 55 for women (it’s five years older for those employed in the public-sector). A raise was considered by the party last year, and again in June, though it remains unclear if changes to the Labor Code are to be adopted.

A raise would prolong the working age population for another few years, alleviating the state of its pension and health care burden during that time. But it would certainly be greeted angrily, as raises in retirement ages are around the world. When reforms to the pension system were announced in 2015, which would have prevented retirees from being able to collect lump-sum social insurance payments when they leave employment, thousands of workers went on strike, forcing the government to soften the changes. At the time, it was reported that Vietnam was heading towards a pension crisis as soon as 2021, when the country’s social security fund would begin to go into deficit, the International Labor Organization claimed. And by 2034, the fund could be depleted entirely.

The government could also raise taxes, which is has begun to do. However, the rise has been relatively modest so far but has nonetheless generated much fury among the people. When I was last in Hanoi a few months ago, people told me that they hated increased taxes because the amount of “greasing money,” as some locals call bribes, is also now increasing. Take the Ministry of Finance’s plan to increase tax on gasoline, rising from 3,000 dong to 8,000 dong per liter. This has been called an “environmental tax” by the state, something that many people don’t believe: they see it as a way of increasing the state budget, not to protect the environment, which is likely as true assessment. Moreover, gasoline prices are already higher than in Malaysia and Indonesia, and with the increased tax, a liter of petrol would cost a sixth of the average person’s daily income. Indeed, many people say planned tax hikes are rising much faster than incomes.

So, as we have seen, planning for an elderly population in the future demands a lot from the current population today. Against this backdrop, Vietnam remains under the control of the ruling Communist Party, which has denied citizens even the merest glimpse of democracy for decades. And now anti-government protests are thought to be on the rise, as is repression.

At the same time, state coffers are in bad shape. Public debt is now thought to be around 64.7 percent of GDP, meaning austerity measures are necessary. Meanwhile, the government’s budget deficit rose from 5 percent of GDP in 2000 to 6.5 percent last year. The government intends to bring it down to 3.5 percent by 2020, an ambition that appears unlikely. Indeed, for its economy to continue growing some experts say Vietnam needs to spend at least US$480 billion over the next four years on infrastructure projects, including new airports, railways and roads.

But the government already cannot afford to this, as shown by constant delays in the Ho Chi Minh City metro, and is unlikely to meet the target if it cuts state expenditure so severely. Private investment might be the way forward. But, at the moment, this only accounts for about 10 percent of funding of infrastructure projects. And if the percentage is to rise then the government will have to impose more economic reforms than it is willing to do.

As I have argued repeatedly, the Communist Party’s legitimacy in the eyes of the public depends largely on its ability to keep the economy growing and standards of living improving. Others accept the status-quo because, at least in the past, the Party was able to provide basic services like education and health care. But even this is now being called into question. A rise in corruption is a natural indication of greater demand than availability. And Vietnam is now thought to be the second-worst country in Asia for bribery, according to a Transparency International report published this year. Sixty-five percent of people said they had to pay bribes, or “greasing money.” This includes backhanders for children to attend good schools or places in hospitals.

So, if the Communist Party can no longer provide basic services to most people, nor ensure improving standards of living, it seems likely that greater numbers of people will begin asking what is the Party’s purpose. More important, without its traditional forms of legitimacy, many will begin demanding their own say in who governs them. When an aging population, which must be prepared for now, is added into the equation things begin looking even dimmer for the Communist Party.