China, India urged to boost safety net to dodge debt trap

Emerging giants China and India must invest in pensions and healthcare systems now for their populations if they want to avoid falling into the West’s debt trap, experts said on Saturday.

“There is a critical opportunity for India right now to look at its policy on pensions and healthcare,” Douglas Peterson, president of ratings agency Standard and Poor’s, told the World Economic Forum’s annual meeting.

Over half of India’s population are under 35 years old at the moment, and while the young workforce is fuelling the country’s growth, this advantage could be reversed in a few decades if a social safety net is not put in place.

“That’s an opportunity but also a risk if those policies are not looked at today if you don’t have the right level of savings, the right levels of pensions system, the right kind of health care.

”I do think that would be a very important factor because we see today with developed economies, with the demographic cost starting to take place, they’re seeing increases in their fiscal deficits and they have less flexibilities.“

”Make sure that’s being looked at today and not wait for 30 years,“ he urged.

China, which is sitting on the world’s biggest reserves, should use part of that $3 trillion war chest to improve its social security network, said Richard Levin, president of Yale University.

”China is going to have a third of its population in retirement in 2050 given the years of one-child policy,“ he said.

”That means pay as you go retirement is fundamentally unsound. Either it’s going to be funded by own savings or funded or partially funded through social security,“ he said.

The Yale professor believes that by investing in a social security system, China can also use up part of its reserves without fuelling inflation.

Economists at the Bank for International Settlements have said that China has bulging reserves at the moment because its workforce is large relative to children and old people.

But this strong ratio of workers to dependants will last just about 15 years before the burden of old people creeps up while the cost of children remains steady. (AFP)