RH will help economy reach ‘sweet spot’

“Demographic sweet spot” is becoming a buzzphrase in business and political circles and the media, thanks to British international bank HSBC’s bold prognosis early this year on the Philippine economy’s rise to global prominence by 2050. This was essentially echoed by Bangko Sentral ng Pilipinas Governor Amando Tetangco Jr. at the Euromoney forum late in March and by Finance Secretary Cesar Purisima around the Asian Development Bank annual general meeting early in May, and reechoed in a comment in the Wall Street Journal (7/24/12).

HSBC predicted that the Philippines would vault 27 rungs to become the world’s 16th largest economy, just one off Russia and distinctly outranking Malaysia, Thailand and Indonesia. Such a prognosis is tied to the Tetangco-Purisima forecast that the economy would hit the “sweet spot” by 2015 as both are attributed to a large population with “a rising proportion of young, consumption-driven workforce” resulting in demographic dividends. That’s the good news.

The bad news is that the predictions are pretty iffy and misleading as they seem to derive from a misapprehension of demographic-economic dynamics. The development literature says that demographic dividends occur as a result of demographic transition when a country’s total fertility rate (TFR, or average completed number of children per woman) falls sharply from a high toward 2.1 (known as replacement fertility)—such that the working-age (15-64) segment of the population grows faster than the young dependent-age (0-14) share. Imagine a “population pyramid” with a wide base that narrows, resulting in the midsection expanding markedly.

Many of our Asian neighbors have long experienced demographic transition and been gifted with dividends—bigger and more productive work force, larger human capital investment in young dependents, and higher savings and investment rates—altogether leading to faster GDP per capita growth and significantly reduced poverty. These include the older Asian tigers Taiwan and South Korea in the 1970s and 1980s, and the newer ones Thailand, Vietnam and Indonesia beginning in the early 1990s or 2000s.

Unfortunately, our country has yet to experience such a demographic-economic halcyon period. Projections by University of the Philippines statistician-economists Dennis Mapa, Arsenio Balisacan et al. (2010) indicate that given the status quo—i.e., no Reproductive Health (RH) program—the Philippines’ TFR would diminish from the current 3.3 to 2.1 by 2030 yet (compared with Thailand’s 1.6 and Indonesia’s 2.1 in 2010). If, however, an RH or family planning (FP) program focused only on unplanned or unwanted fertility (mostly of poor couples) were already in place since 2008, a TFR of 2.1 could be achieved by 2020.

Consider the following demographic data that underscore further how the Philippines has lagged well behind its neighbors in achieving demographic transition. In 1990, Thailand’s working-age population was already 65 percent (and Indonesia 60 percent) of the total population compared with the Philippines’ 56 percent. By 2015, the respective numbers are projected to be 71 percent, 69 percent, and 63 percent, such that our population’s working-age share would still be lower than Thailand’s in 1990!

The flipside, of course, is the proportion of young nonworking dependents, referred to as the dependency burden, which is heaviest for the Philippines: 33 percent in 2010 versus 21 percent for Thailand and 27 percent for Indonesia. By 2015, the Philippines’ burden eases just a bit to 32 percent compared with Thailand’s 19 percent and Indonesia’s 26 percent.

The lesson seems clear. Our progressive Asian neighbors have reaped the demographic-transition bonus by seriously implementing population policies early on that sharply slowed their population growth rates (PGR, evidently related to, but not to be confused with, TFR)—e.g., Thailand’s 0.5 percent and Indonesia’s 1.2 percent versus the Philippines’ 1.9 percent (as of 2008-2010). Slower PGR enabled higher human capital and infrastructure spending, resulting in positive demographic-economic synergies.

HSBC qualifies its prognosis: “[T]here are two ways economies can grow; either add more people to the production line via growth in the working population, or make each individual more productive… Behind these projections we assume governments build on their recent progress and remain solely focused on increasing the living standards for their populations.”

These, of course, are big ifs because making each worker more productive and raising living standards can scarcely be achieved without population management complementing economic policy. For instance, partly due to a lack of a clear population policy in the Philippines, investment in human capital per student has been declining in real terms and worker productivity has been slipping. Meanwhile, calls for a firm population policy since our early FP program stalled in the late 1970s have gone unheeded and stymied by church-state politics.

The sooner the RH bill is passed and implemented, the faster the economy can hit the “sweet spot.” The naysayers are, of course, quick to say that that would bring about the aging problem sooner. It’s actually a common fallacy, because after reaching replacement fertility, a population continues to grow owing to demographic momentum typically for another 70 years or so before it stabilizes.

“All told, RH programs offer a win-win solution. They lift the well-being of individual women and children, and benefit the economy and the environment as well” (30 UP economists, Inquirer, 7/29/12).

Ernesto M. Pernia is with the UP School of Economics and is former lead economist of the ADB.