Selim Raihan and Selsah Pasali
In the coming decades, the Asia-Pacific region faces a series of challenges that threaten to exacerbate poverty. Among these, climate change, demographic shifts — particularly aging populations — and the rise of digital technologies stand out as three interconnected global megatrends.
A recent technical paper supporting the Social Outlook for Asia and the Pacific 2024 shows one scenario under which 266 million people in the region could be at risk of falling into poverty by 2040. This underscores the urgent need to strengthen and finance social protection systems across the region, as addressing these issues proactively is far more cost-effective than reacting to them later.
Climate change is increasingly evident, with rising temperatures, extreme weather and disrupted ecosystems impacting both the environment and economies. This poses a direct threat to livelihoods, especially for those dependent on agriculture and natural resources.
Graying populations are another significant trend. While longer life expectancy is positive, it strains social services, health care and pension systems. Without integrated policies to address these pressures, public resources, already stretched by debt, could face further strain, risking economic instability.
Digital technologies’ rapid advance are another challenge: It offers growth and efficiency benefits but also posing potential problems. Job displacement and increased inequality are risks if these technologies are not managed inclusively. Balancing their benefits and risks is crucial for equitable progress.
Using the Global Trade Analysis Project (GTAP) model to project 2040 scenarios, varying degrees of climate change, demographic shifts, and digitalization show a stark contrast between optimistic and pessimistic outcomes, highlighting the crucial need to enhance social protection expenditures. Two scenarios are considered in the model, with results presented in the chart below.
Optimistic scenario: This scenario assumes a 1.5 C increase in global temperatures, that populations age in a healthy manner and significant improvements are made by countries in information and communications technology’s productive capacity by 2040. Under this scenario, the projected increase in poverty by 2040 is 199.8 million people or 6.5% of the total population in the Asia-Pacific region.
Pessimistic scenario: This scenario assumes a 2.0 C increase in global temperatures, no progress in healthy aging and insufficient advancements in ICT productivity. Here, the poverty headcount is projected to increase by 266.1 million people or 8.7%.
The difference between these scenarios illustrates the profound impact of each megatrend. Climate change is a major driver of increased poverty. For instance, under a pessimistic scenario, Kiribati, Nepal and Tonga could see their poverty rates rise by over 15 percentage points relative to the baseline. Even with just 1.5 C warming, the regional average poverty rate could increase by 2.8 percentage points, highlighting climate change’s significant impact on poverty. Population aging is also a critical factor. Without healthy ageing, an additional 10 million people might fall into poverty due to rising health care costs, with countries like Armenia, Kiribati, Maldives and Mongolia being especially vulnerable. Digitalization, though less impactful overall, has notable effects in specific countries like Turkey, Vietnam and Vanuatu, influencing differences between optimistic and pessimistic scenarios.
If social protection expenditures are not increased, the cost of mitigating the rise in poverty could be substantial. To counteract the projected poverty increases, approximately 6.2% of GDP would need to be mobilized under the optimistic scenario. The total cost would increase to 8.7% of GDP in 2040 under the pessimistic scenario. These are lower-bound estimates as they assume governments can directly target affected households and seamlessly provide cash transfers.
The projected rise in poverty and associated costs underscore the urgent need for government action, which necessitates stronger political will to match the associated investment needs. Empirical analysis supports several key policy recommendations.
Governments should implement policies for a just transition, which includes effective climate action to mitigate the economic and social impacts of both sudden and gradual disasters, and to support the shift towards a net-zero emissions economy.
Additionally, strategies for healthy aging and investing in health care infrastructure, such as universal social health protection, can ease the financial strain of an aging population, ensuring social stability and economic prosperity.
At the same time, policymakers should also focus on fostering inclusive digital economies, providing opportunities for all, including those at risk of being left behind. Investments in digital literacy and skills training are crucial to counteract digital disruption’s negative effects.
Overall, expanding social protection coverage and increasing benefit levels are essential. This includes implementing social protection floors and gradually enhancing multipillared systems to cover more individuals and increase benefits, ensuring that no one is excluded from protection against life cycle contingencies and shocks.
source : asia.nikkei