MacroScope

The pension grabs by austerity-averse governments in Poland and Hungary could impact this year’s planned reforms in the Czech Republic, causing another emerging European Union member to soften its approach to a looming debt threat tied to an aging population.

Budapest has already drawn criticism for right-wing Prime Minister Viktor Orban’s plan to seize $14 billion of assets in privately held pension accounts to plug a budget hole without having to cut state spending. Poland’s plans, while not as extreme, have also raised eyebrows. Poles now pay about 7 percent of their paychecks into private accounts, but Prime Minister Tusk is planning to cut that to about 2 percent, taking the extra cash to reduce debt and replacing those funds with future state obligations.

To their credit, all three countries are among a group of nine who have lobbied Brussels, without much effect, for big exemptions to their pension reform costs. But while using funds designated for private pension accounts will cut the budget deficit in the short term, economists say it is only a trade-off between replacing short-term deficits with future pension costs, a good way for governments to stay popular but bad for long-term financial health.

These moves are starting to reverberate for the Czechs, the only country in the EU’s emerging East not to have added any significant fund-based elements to their communist-era pay-as-you-go social security. Parties in Prime Minister Petr Necas’s government had originally planned to create an obligatory pillar in which workers would have to pay at most 3 or 4 percent of their gross salaries into private accounts, unlike the 6-8 percent from the Hungarian and Polish systems.

But Necas is  softening his stance. Although he called Hungary’s moves “incomprehensible” this week, he also said an over-eagerness by eastern European officials to please Brussels and the International Monetary Fund had created unsustainable systems. “In my opinion, it supports our theory that it is perhaps better to give priority to voluntary retirement savings rather than obligatory”, he said.

Far from being lauded as a virtue, China’s high savings rate has been blamed for the economic imbalances underlying the global financial crisis. The criticism being that the Chinese spend too little and rely too much on exporting to Western consumers.

The IMF and World Bank have long called for Beijing to ramp up social spending so its citizens will feel less need to save for a rainy day and instead consume more.

But in their intriguingly named paper,  ‘A Sexually Unbalanced Model of Current Account Imbalances‘, New York-based researchers Du Qingyuan and Wei Shang-Jin suggest China’s gender imbalance could also be a significant factor in the persistence of its high savings rate.

In the realm of  long-term economic things to worry about, there is not much that can rival youth unemployment in the greater Middle East and North Africa. Some years ago, for example, the World Bank  estimated that the region’s population rise was such that jobs needed to grow by some 3.5 percent  per year if unemployment along the lines of one-in-four was to be avoided over the next couple of decades. There has been nothing of great note to change this forecast.

The International Monetary Fund has just weighed into the issue with a post on the subject and some startling figures on the depth of the problem. As author Masood Ahmed writes:

Simply put, the region is facing unparalleled demographic pressures. Population growth over the past two generations has been among the fastest in the world: the region’s work force is projected to reach 185 million in 2020, 80 percent higher than in 2000. And the region is one of the most youthful in the world—with about 60 percent of the population less than 25 years old.

All the talk of addressing the global imbalances throws a spotlight on contrasting demographic trends in the world's two most populous nations -- China and India.

Prior to the financial crisis, India's annual growth rate of about 9 percent seemed positively moribund next to China's double-digit economic expansion. But purely on demographics, the dimming power of the US consumer could give India an edge over its neighbour in the longer run.

That's what India's trade minister Anand Sharma seemed to suggest last week when he reminded the audience at a London conference that the country had "20 percent of the world's children":