HELP THE AGED

Brazil’s demographic nightmare is just beginning

After enduring the worst recession in its history, Brazil finally seems to be finding its footing. There’s one problem it won’t as easily outrun, though. Its ranks of elderly are growing way faster than its population of workers. That’s putting Brazil on track to suffer the worst demographic crunch of any emerging market save for Chile and China.

A standard way of measuring this imbalance is the old-age dependency ratio, the number of folks aged 65 and over versus the number of working-age residents (those aged 15-64). This is a useful gauge because it falls to those younger workers to support the elderly as they retire. Right now, for every three Brazilian seniors there are 25 younger workers to pay for their welfare. Over the past five years, spending on social security grew 12.6%, on average, while revenue for the program expanded only 7.9%, according to Société Générale.

However, by 2040, the taxes of 25 workers will have to fund more than twice as many old people through their twilight years, assuming there’s no immigration boom or pregnancy bonanza in the next two decades. The latter isn’t likely given declining birth rates, which fell beneath the level of zero-population growth back in 2005—and they’re quite possibly much lower than official estimates (pdf, p.4).

That’s going to get real dicey, particularly since Brazil’s growth outlook isn’t the rosiest. In fact, Dev Ashish, analyst at Société Générale, expects the country’s current fiscal struggles to drag on growth well into the next decade. “Meanwhile, the rise in old-age dependency will make it nearly impossible to finance social security obligations under the existing regime,” he notes.

The good news is that Brazil’s government is, if not on top of the problem, at least aware of it. In April, congress will begin negotiations on a pension reform law that aims to up the retirement age and extend the amount of working years required to receive retirement benefits—in effect, enlarging the proportion of workers to pensioners.

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