Demographic change poses fiscal and economic challenge for Colombia

The study employs a Computable General Equilibrium (CGE) model to quantify the macroeconomic and fiscal impacts of demographic change in Colombia.

It specifically analyzes the effects on the pension system, health sector, education, and other age-related public expenditures, alongside government fiscal revenues.

The model projects a persistent increase in public spending, primarily driven by rising transfers to pension and health systems.

This trajectory leads to a substantial widening of the primary fiscal deficit by 2070.

Consequently, Central Government debt is estimated to surpass 180 percent of GDP, significantly elevating sovereign financing costs and posing a structural challenge to fiscal sustainability.

The analysis highlights the critical need for policy intervention to mitigate these long-term pressures.

The research extends beyond direct expenditure impacts, incorporating indirect effects that operate through the labor market and capital accumulation.

Demographic shifts are shown to influence labor supply and productivity, thereby affecting overall economic growth potential.

Reduced labor force participation and changes in savings patterns due to an older population can hinder capital formation, further dampening economic expansion.

These combined direct and indirect channels contribute to significant implications for Colombia's long-term economic growth and employment prospects, reinforcing the urgency of addressing the demographic transition comprehensively.