In a Malaysian train station shortly after the easing of Covid-related restrictions (Simon Roughneen)
In a Malaysian train station shortly after the easing of Covid-related restrictions (Simon Roughneen)

DUBLIN – While the coronavirus pandemic upended state spending plans and left economies reeling, its impact is likely to pale in comparison to challenges such as ageing populations, according to the Organisation for Economic Co-operation and Development (OECD).

The Paris-based group’s secretariat said on Tuesday that before the pandemic, governments were facing health spending rises of over two percentage points of gross domestic product (GDP) between now and 2060 and around the same for pensions in countries with what the OECD labelled “unfavourable demographics.”

By comparison, recently accrued government debt to pay for pandemic-related social and health spending is likely to add “only about 1/2 percentage point of GDP to long-run fiscal pressure in the median country,” according to the OECD.

Should governments choose to meet their long-term spending needs, they “need to increase structural primary revenue by nearly 8 percentage points of GDP between 2021 and 2060,” the OECD warned, a median spend that could top 10 percentage points in the worst-affected nations.

Raising retirement ages, a reform already implemented in several countries, could be a remedy, the OECD said, and in tandem with “labour market policy reforms” could cut the required fiscal spending in half.

In the longer term, as overall population growth slows or goes into reverse, GDPs are likely to follow suit, increasing fiscal pressures on governments, the OECD warned, with “working-age population growth” in G20 countries likely to “turn negative” in about two decades’ time.

British consultancy Oxford Economics said last week that the coming decades could see “capital flowing from fast-ageing societies” where savings are high to high-growth developing economies where there are more young people.

Follow us on Twitter