Demographic and macroeconomic trends in Egypt Population trends: Actual outcome and continued decline

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The Economic Impact—Forgone Savings and Potential Gains

SAMEH EL-SAHARTY, HEBA NASSAR, MARIAM M. HAMZA, AND YI ZHANG

Before 2008, the Arab Republic of Egypt had been on a path of declining fertility, increasing the share of its working-age population and potentially maximizing its demographic dividend. However, this advance halted, hurting the country’s potential for economic growth and burdening the government through increased public expenditures. This chapter aims to quantify the economic effects of the change in fertility in monetary terms, which goes beyond analyzing the relationships between age structure and economic factors. This approach is vital for evidence-based population policy making, as this type of quantification can inform policy dialogue and help in understanding the economic implications of supporting investment in cost-effective population policies.

The chapter relies on two methods of analysis: a retrospective analysis that assesses the costs of Egypt’s population growth over 2007/08–2019/20 in terms of forgone savings and opportunity costs for the economy caused by the reversal in fertility decline; and a prospective analysis that estimates the potential savings in public expenditure and potential gains in national income under two hypothetical scenarios of different rates of fertility decline (“moderate” and “accelerated”) over 2021–30. Population projections are made using data from the UN World Population Prospects database and the DemProj software model. The methodology used for estimating the relationships between age structure, GDP, and savings was described in Cruz and Ahmed (2018).

DEMOGRAPHIC AND MACROECONOMIC TRENDS IN EGYPT

An inverse correlation between GDP per capita and the total dependency ratio (that is, dependency of young and old combined) can be observed for Egypt (figure 5.1). With a sharp decline in the total dependency ratio, driven by the sharp decline in fertility and the child dependency ratio during 1990–2010, GDP per capita continued to grow. The old-age (65 and above) dependency ratio remained stagnant over the entire period at around 7 percent, implying that there are no significant changes in life expectancy to notably increase the small proportion of the older population. One of the commonly used criteria for determining the occurrence of the demographic dividend is whether the value of the total dependency ratio is less than 0.5, that is, one dependent for two workers