Dr Khalid Waleed
Pakistan, like many developing nations, is experiencing a demographic phenomenon known as a ‘youth bulge’, with about 60 per cent of its population comprising young people.
This demographic structure can potentially yield a ‘demographic dividend’, a period when the number of dependents is low, and the working-age population is high, leading to increased savings, investments, and economic growth. However, this dividend is not guaranteed and is contingent on various factors, including the country’s ability to capitalize on this demographic trend through appropriate policies and investments.
Moreover, the impacts of climate change disasters are increasingly threatening to derail this potential economic boon, turning it into an intergenerational economic disaster. Thomas Piketty in his book, ‘A brief history of equality’, calls climate-induced inequality the modern form of inequality.
Taking the lead from theoretical economics, the Life Cycle Income Hypothesis posits that individuals aim to maintain a stable level of consumption throughout their lives by adjusting their savings and borrowing patterns. In the context of a youth bulge, young individuals typically have lower savings rates as they are in the early stages of their careers and are more focused on consumption. As they age, their income and savings increase, peaking around middle age, and then decline in old age. This pattern has significant implications for a country’s economy, particularly concerning the sustainability of its social security systems and the overall economic well-being of its citizens.
The Demographic Transition Theory, on the other hand, describes the process through which societies transition from high birth and death rates to low birth and death rates as they undergo industrialization and economic development. During this transition, there is a period when birth rates decline, leading to a temporary imbalance where the number of dependents (children and elderly) is relatively low compared to the working-age population. This period, known as the demographic dividend, provides a window of opportunity for economic growth as resources that would otherwise be spent on dependent populations can be redirected towards investments in education, infrastructure, and other areas that promote economic development.
However, the demographic dividend is not a guaranteed outcome and is contingent on several factors, including the ability of the economy to absorb the increasing number of young people entering the workforce, the quality of education and training they receive, the availability of job opportunities, and the overall economic conditions of the country. Moreover, external factors such as climate change can significantly impact the potential benefits of the demographic dividend, potentially turning it into an economic disaster.
Pakistan, with its large youth population and ongoing demographic transition, is particularly vulnerable to the impacts of climate change disasters. The country has experienced a significant increase in the frequency and intensity of extreme weather events, including floods, droughts, and heatwaves, which have had devastating effects on its economy, infrastructure, and population. These disasters not only result in immediate human and economic losses but also have long-term implications for the country’s economic development, particularly concerning its ability to capitalize on its demographic dividend.
The Economic Survey of Pakistan for the year 2022 revealed a savings rate of 11.1 per cent alongside a GDP totaling approximately $374 billion. These figures imply that the total savings in Pakistan amounted to roughly $41.5 billion.
In stark contrast, the World Bank’s estimates painted a sobering picture of the economic impact of the 2022 floods, suggesting a staggering loss of around $30 billion. This loss represents a substantial 72 per cent of Pakistan’s national savings, underscoring the severe economic repercussions of natural disasters on the country’s financial stability and growth prospects.
One of the ways climate change disasters impact the savings of the young is through their effects on employment opportunities and income stability. Disasters such as floods and droughts can disrupt agricultural activities, which are a significant source of employment for many young people in Pakistan. Moreover, the destruction of infrastructure and productive assets can further exacerbate the economic challenges faced by young people, leading to lower savings rates and increased reliance on borrowing.
Furthermore, climate change disasters can also impact the education and skill development of young people, further limiting their ability to save and invest in their future. Disruptions to education systems, damage to schools and other educational facilities, and the displacement of populations can all have long-lasting effects on the human capital development of young people, reducing their potential to contribute meaningfully to the economy in the future.
The impacts of climate change disasters on the savings of youth are not only limited to the present but can also have significant intergenerational implications. As the current youth bulge ages and enters old age, they will become increasingly dependent on social security systems and other forms of support, placing a significant burden on future generations. Moreover, the economic losses incurred as a result of climate change disasters can limit the ability of the government to invest in the social security and welfare systems necessary to support an aging population, further exacerbating the potential economic crisis.
To address the challenges of climate change and intergenerational income inequality in Pakistan, policymakers should prioritize a comprehensive set of actionable policy recommendations. First, establish and operationalize the National Climate Change Authority and fund as mentioned in the National Climate Change Act 2017 dedicated to financing the construction of climate-resilient infrastructure, including flood defences, water management systems, renewable energy projects and a climate-smart social security system. Additionally, incentivize private sector investment in climate-resilient infrastructure projects to accelerate their implementation of tax credits, climate-smart subsidies and other concessional loans.
Second, revise the national curriculum to include education on climate change-induced entrepreneurship and practical skills training, particularly in renewable energy, water management, and disaster preparedness. Third, financial literacy campaigns targeting the youth to promote savings and investment habits. The development of innovative financial products, such as climate-linked savings accounts or microinsurance for climate-related risks, to incentivize savings among youth will be crucial for economic and environmental perspectives. The role of financial institutions in expanding access to financial services in rural and marginalized communities, particularly climate risk management products will be essential. Fourth, at the national level, the implementation of a carbon tax with a progressive structure to redistribute wealth, fund programs for low-income populations, support green job creation, and promote public education on climate change.
To further decrease climate-induced inequalities, enhancing access to climate-adaptive agricultural technologies and practices for smallholder farmers is crucial. Given the sector’s susceptibility to climate impacts such as altered precipitation patterns, extreme weather events, and rising temperatures, policies should focus on the development and dissemination of climate-resilient crop varieties. Encouraging research and making drought-resistant, flood-tolerant, and heat-resistant seeds affordable will benefit smallholder farmers.
Additionally, building farmers’ capacity through training in sustainable agricultural practices, including precision farming and conservation agriculture, is essential. Expanding early warning systems and weather forecasting tailored to agricultural needs will empower farmers to make informed decisions. Providing microfinance products and weather-indexed insurance schemes will protect against crop losses and enable investment in climate-resilient farming. Promoting agroecological practices such as agroforestry and organic farming will enhance ecosystem resilience and reduce dependency on chemical inputs.
This will require an intergenerational policy consensus, a whole-of-sector and whole-of-society approach which eventually develops long-term integrated intertemporal planning. These measures can help Pakistan address climate change, promote sustainable development, and reduce intergenerational income inequality.Courtesy The News
