While the world is fixated with reducing the economic disruption and deaths from the pandemic, Vietnam has lifted its lock-down, registered no deaths and is tinkering with public policies to promote more births. Perhaps nothing so exemplifies Vietnam's position as one of the most dynamic countries in emerging markets.
In Vietnam, the old age dependency ratio (the number of people aged over 60 divided by the number of people between 15-59) is expected to double in the next 25 years, according to UN projections. Vietnam's working age population likely peaks later this decade at much lower GDP per capita levels than seen in East Asia peers.
This makes for a very attractive consumer market right now (with so much of the population in their best earning years), but it stores up problems down the line. Ultimately, the supply of productive labour slows (which drives wage inflation), and the fiscal costs of public health care and pensions (coverage is merely 20% of the formal labour force currently and, for most retirees, public pension benefits start after the age of 80, according to the World Bank) accelerate.
The two main policy tools to change this demographic trajectory are to raise the retirement ages and to encourage higher fertility rates.
In November 2019, a timetable for retirement age increases was brought into law: on a gradual basis over 2021-28, the retirement age would increase to 62 from 60 for men, and to 60 from 55 for women.
This week, Vietnam Prime Minister Nguyen Xuan Phuc introduced the following measures under the 2030 national population strategy:
- Target fertility rate increase by 10 percentage points in areas where couples average less than two children (there is substantial regional variation around the target nationwide average of 2.2 children per woman of reproductive age, with around a 40% lower figure in Ho Chi Minh City – a city where the population is growing relatively fast and is a recipient of migrants, mainly female, from rural areas);
- Income tax cuts, and subsidies for education and housing for couples with two children;
- Marriage and family consultation services (eg match-making clubs) piloted by local authorities;
- Health-care and malnutrition consultation services for pregnant women.
In what remains a positive top-down view of the Vietnam investment case, we have highlighted, in previous reports, rapid population aging as being among other noteworthy risks (eg low foreign ownership room in equities, sluggish state-owned enterprise reform and light capital buffers in the banking system).
Vietnam: Still high growth, low accessibility, 11 April 2019
Vietnam: Flows and fundamentals invalidate our caution, 19 March 2018