Rapid Aging May Cause Fiscal Crisis in Korea: IMF

The International Monetary Fund warned against Korea’s rapid aging trend, saying the nation might face a fiscal crisis, according to its analysis.

The IMF also urged the Korean government to take prompt measures such as government expenditure reduction, pension reform, and tax base expansion.

Korea is on the verge of an unprecedented demographic shift, which might lead to a fiscal crisis in the mid-to-long term, the IMF said in its recent report titled, “Addressing Korea’s Long-Term Fiscal Challenges.” Delayed response to the change will lead to stifled growth, soaring government debts, and worsening financial health, it also warned, according to the Ministry of Finance and Economy on Sunday.

According to the IMF`s findings through Global Fiscal Model (GFM) simulation, Korea will see the ratio of people aged 65 or more versus the economically active population aged between 15 and 64 soar from 13 percent in 2005 to an alarming 65 percent in 2050.

This means that 7.7 economically active Koreans had to support an elderly in 2005, but come 2050, it will be 1.5 economically active people per one elderly.

Government expenditures related to this demographic change will reach 13 percent of the total GDP by 2060, three times the G7 average of 4 percent.

The Korean National Pension System is also doomed to run out in 2060 after going into the red from 2044, although the pension system is making a huge amount of surplus at the moment due to low pension allowances, the report pointed out.

To avoid bankruptcy, the Korean government should revisit its spending schemes, expand its tax base, and further revise the pension system, including rate hikes, the IMF said.

Meanwhile, a growing number of the elderly are seeking jobs. Working people over the age of 65 grew by 75 percent from a decade ago. According to the National Statistical office on Sunday, as of 2007, the number of economically active elderly population (the employed and job seekers) stood at 1.52 million, a 75.1-percent increase from 869,000 in 1997.

The upward trend is gradual and expected to continue. For the last decade, the elderly population grew from 2.93 to 4.87 million, and more of them hope to continue working after retirement. The labor force participation rate of elderly people aged 65 or over is also steadily on the rise, from 28.7 percent in 2003 to 31.2 percent last year.

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