Singapore’s demographic engineering on right track

January 30, 2013

By Andy Mukherjee

The author is a Reuters Breakingviews columnist.  The opinions expressed are his own.

Singapore’s audacious proposal to squeeze 30 percent more residents on a tiny island between now and 2030 is fraught with political risks for the ruling party. Voters won’t like it. But it’s prudent economics.

Without immigration or better productivity, Singapore’s potential GDP growth rate could slow to as little as 1 percent for the rest of this decade, compared with actual expansion of more than 4.5 percent between 2000 and 2009. Things would get even worse beyond 2020 as baby boomers, the first cohort of whom turned 65 last year, retire in large numbers. With fertility rates below replacement rates for three decades, foreign workers are the only way to top up the shrinking labour force.

In a white paper issued on Jan. 29, the government takes a pragmatic approach. It forecasts that about 45 percent of the residents in 2030 will be non-citizens, compared to the current 38 percent of Singapore’s population of 5.3 million.

Sensible economics don’t always pass the political test, though. Even if immigrants prove loyal to the government that let them in, the larger base of existing citizens may not. Many are unhappy with the government for taking in an average 122,000 non-citizens every year between 2006 and 2012.

Overcrowding, especially on the city’s transportation infrastructure, is likely to be the biggest concern. It led to a sizeable protest vote against the ruling People’s Action Party in the 2011 general elections. The discontent persists. Recently, the PAP lost a by-election, a shock for the party that has governed Singapore since it became an independent nation in 1965.

But fears of being swamped should prove to be overblown, especially if infrastructure investment keeps flowing. Moreover, the locals will benefit in another way from population growth: it should ensure strong demand for housing – the most significant investment for Singaporeans. Retiring baby boomers will be spared a wealth squeeze. That’s a demographic dividend worth supporting.

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