Nepal is now passing through demographic transition, a phenomenon of long-term change from high to low mortality and fertility. Such transitions have already been completed in developed countries, whereas developing countries are still working their way through it. In the early stage of the demographic transition, fertility rate falls more slowly than mortality rate, leading to an increase in the number of children, or baby boom, followed by a surge in the number and share of the working age population. With labor force numbering high (relative to the population dependent on it), more resources are automatically freed up for investment in economic development and family welfare, signaling an increase in the productive capacity of an economy on a per capita basis. This phenomenon is called the demographic dividend, a time-limited window of opportunity for rapid income growth and poverty reduction.
Both fertility and mortality rate in Nepal have been declining since 1960 and 1950 respectively, implying Nepal’s entry into the demographic transition. The fertility rate (child per woman) and infant mortality rate (per 1000 live births), which were 6.10 and 187 respectively in 1960, declined to 2.59 and 32 in 2010, according to the World Population Prospects 2010 of United Nations Population Division. Accordingly, the dependency ratio (number of dependents per 100 persons of working age) started to decline from 123.5 of 1980 to 105.8 in 2010. The declining rates of fertility and mortality, as well as the rising share of working age population are signals of the demographic dividends that Nepal can reap for sustained development.
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The dividend period continues for five or more decades until the generations with an ever-increasing labor force near retirement age. Based on the UN Population Division’s projection, it can be concluded that in Nepal’s case, the period of population dividend will continue until the end of this century. For instance, infant mortality is projected to decline continuously, but fertility rate will decline to 1.72 by 2060 and increase thereafter. Likewise, the report also projects that the dependency ratio will fall to 62 by 2050 and increase gradually thereafter, reaching 90.6 by 2100. The size of population aged 15-64 was 5 million in 1950 and 18 million in 2010. The share of this population group will peak in 2050, reaching 32 million, and then decline gradually. These trends imply that Nepal may experience population aging and declining support ratio only in the end of this century.
Nepal will not emerge economically unless it seizes this demographic window of opportunity, as emerging economies did in the 1970s. One-third of East Asia’s economic growth was attributed to this economic shift. Thus it is right time for Nepal to take the benefit of increased productive capacity that comes with a growing labor force, reduced burden due to declining number of dependents, and reduced childbearing responsibilities of women due to declining fertility. Nepal’s ongoing demographic transition can be converted into a dividend or gift only by providing productive employment for the growing labor force, promoting savings and productive investment, and raising investment in shaping high-quality human capital.
The need is to adopt better population policies, plans and programs as well as take the population variables in account in other sectoral policies such as education, health, and food security. Specifically, key efforts to reap the dividend may be adequate investment in education and health to transform youth into a productive force, labor market flexibility, strengthening the rule of law, improving the efficiency of government operations, and guaranteeing contract enforcement.
It is the right time for Nepal to take the benefit of a growing labor force and declining number of dependents.
Despite such explicit benefits, Nepal is yet to formulate and implement any policies to seize the demographic dividend. Instead, many dominant forces in the economy are working against the way of exploiting the dividend. Inadequate resources devoted to enhance the growth of human capital, discriminatory practices towards employment and education, shaky macroeconomic situation, fragile governance structure, political instability, and lack of well-functioning markets and institutions are examples of such counter-productive steps. The major policy focus now is on promoting foreign employment rather than productive employment at home. It should be realized that increased foreign employment is not the first or the best solution to the problems of poverty and development. Many countries have received huge amounts of remittances, for years, but the remittance did not necessarily translate to growth. Remittances are not the highway to a better future. They are a wobbly crutch that millions of Nepalis must rely on because there is no better way to support themselves at home.
The dividend period is a window of opportunity offering a transitory bonus, and dividends will not come automatically. It depends on the implementation of effective policies. Ignoring these long-term trends may be tempting, but failing to respond now may take Nepal down an unwelcome and unavoidable path of economic decline. Thus, it is crucial for Nepal to implement development strategies to reap the dividend.
The author is Assistant Director at Nepal Rastra Bank
bc_birendra@hotmail.com
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