COLOMBO (News 1st); While much of South Asia is still enjoying the economic benefits of a large and expanding workforce, Sri Lanka is rapidly approaching a very different reality.
According to the report, Demographic Change in South Asia: From Tailwinds to Headwinds for Development, Sri Lanka is now closer to becoming an aged society than any other country in the region, placing it on the front line of one of the most significant demographic shifts South Asia will face over the coming decades.
South Asia enters the coming decades with what economists describe as one of its greatest assets: a massive working-age population capable of driving economic growth, boosting productivity, creating jobs and stimulating private sector expansion.
However, while many countries in the region are still benefiting from this demographic dividend, Sri Lanka has already moved into a new phase of development where population ageing is no longer a future concern but a present reality.
The report notes that Sri Lanka became an ageing society as far back as 2008 and is now only four years away from reaching "aged society" status in 2030. This makes Sri Lanka unique within South Asia, where other nations still retain relatively younger populations and larger proportions of working-age citizens.
What makes the challenge even more pressing is that Sri Lanka's share of working-age people peaked nearly two decades ago in 2005. Since then, the country's demographic advantage has gradually been declining, meaning there are proportionately fewer people entering the labour force while the number of older citizens continues to rise.
For policymakers, this creates an urgent challenge.
Countries with growing working-age populations often benefit from increased economic activity, a broader tax base and greater labour availability. In contrast, ageing societies must support larger numbers of retirees while relying on a comparatively smaller workforce to sustain growth, fund social services and maintain public finances.
The report argues that Sri Lanka is no longer in a position where it can simply prepare for ageing. Instead, it is already living through the transition and must accelerate efforts to adapt to an older society.
One major concern highlighted by the report is the limited growth of Sri Lankan businesses over time.
Researchers found that firms aged between 15 and 24 years are only around 1.5 times larger than younger companies. This relatively modest expansion suggests that many businesses struggle to scale up as they mature, limiting productivity gains, reducing opportunities for higher-quality employment and constraining broader economic growth.
The report warns that stronger and more dynamic firms will be essential in the years ahead as the country seeks ways to maintain economic output despite a shrinking workforce.
The relationship between health and employment was identified as another critical issue that will become increasingly important as the population grows older.
Workers suffering from at least one noncommunicable disease were found to be 9.5 percent less likely to be employed compared to healthier individuals. Even when employed, they earned approximately 48 percent less.
Despite these concerns, the report points to several strengths that Sri Lanka can build upon.
The country's healthcare system performs remarkably well relative to the amount of money spent on it. Public spending remains relatively low compared to many countries, yet Sri Lanka has achieved stronger outcomes in reducing child stunting than regional neighbours such as India and Nepal.
Education, however, presents a different picture.
The report identifies education spending as particularly low and warns that underinvestment in human capital could undermine future productivity. As the labour force becomes smaller, each worker will need to become more productive to sustain economic growth. Achieving this requires stronger investments in education, skills development, training and lifelong learning.
Without such investments, the country could find itself facing the difficult combination of a shrinking workforce and inadequate productivity growth.
The report also points to trade reforms as a potential source of economic momentum.
Sri Lanka is currently considering substantial reductions in import barriers, a move that could make domestic firms more competitive, lower business costs and encourage stronger private-sector growth.
According to the study, more competitive firms could generate higher economic growth while simultaneously creating additional government revenue that may be needed to finance the higher costs associated with an ageing population.
The report also draws attention to the country's pension system and long-term financial preparedness.
The Employees' Provident Fund (EPF), established in 1958, remains the cornerstone of retirement savings in Sri Lanka and currently operates with a contribution rate of 20 percent.
However, researchers note that approximately 96 percent of EPF assets are invested in government securities. While this provides stability, it limits the development of private capital markets and may reduce potential long-term returns for contributors.
The report further highlights a policy that could be affecting female participation in the labour force later in life.
Women covered by the EPF are subject to a mandatory retirement age of 50, a provision that effectively shortens working lives and limits opportunities for older women to remain economically active.
Beyond formal employment sectors, Sri Lanka has introduced a range of pension schemes designed to support workers who have traditionally remained outside conventional retirement systems.
Among them are Surekuma, which caters to informal and self-employed workers, and Vigamanika, which serves migrant workers. Separate pension programmes also exist for farmers and fishing communities.
These initiatives offer retirement, disability and survivor benefits, providing an important social safety net for groups often excluded from traditional pension schemes.
However, the report notes that participation levels remain relatively low, limiting their overall effectiveness.
Long-term elderly care was also highlighted as an area where Sri Lanka has developed innovative community-based approaches.
Instead of relying solely on residential care facilities, the country coordinates many ageing-related services through elder rights promotion officers and a network of daycare centres designed to support older adults who remain largely independent.
The report describes this model as a noteworthy example for other South Asian countries, many of which will soon face similar demographic transitions and may look to Sri Lanka's experiences when developing their own ageing strategies.
The overarching message of the report is both a warning and an opportunity.
For decades, demographic trends helped support economic growth by providing Sri Lanka with a large and productive workforce. That advantage is now fading. The country is entering a new era in which economic success will increasingly depend on healthier citizens, better education, stronger businesses, higher productivity and policies that enable older people to remain active and financially secure.
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