A population is said to be ageing when the percentage of population belonging to the age group 60 and above is increasing. The demographic transition theory shows us the manner in which the changes in fertility and mortality paved the way to population ageing. (De Silva, 1994).

Total Fertility Rate (TFR) means the number of children a woman would have if she were to bear children over her fertile period at the rate children are born to her at that time. (De Silva, 2007a). In Sri Lanka, the last four or five decades

or so was an era of decline in mortality and fertility rates, thus giving rise to population ageing. As far as fertility level of Sri Lanka is concerned it had declined form a figure of 5.5 in 1946 to a figure of 1.96 for the period of 1995-2000. (Department of Census and Statistics, 2001a). Sri Lanka has reached replacement level fertility (TFR=2.1) long before expected. As far as mortality is concerned it has declined form 9 per 1000 in 1960 to 6.6 in 2003. (De Silva, 2007a). According to United Nations 2008, in year 2008 Sri Lankan population above age 60 reports a figure of 11%, while Aging index shows a value of 48, reporting highest figures in South Asia (United Nations, 2008). As projected, by 2031, 21.9% of Sri Lanka’s population will belong to the age group above 60. In other words one out of four will be an aged citizen. (De Silva, 1994). Following population pyramids are constructed, to show the nature and the seriousness of ageing in Sri Lanka.

As far as economic challenges of ageing on Sri Lanka’s context are concerned, growing old dependency will be one prominent burden. This may have various effects on Sri Lanka’s economy. As most Neo-Classical economists argue, this increasing elderly population will have negative effects on the economy. Savings will decline paving way to reduction in investments (Since less savings create less capital) and finally a decline in macro economic growth. Fiscal pressure on the government will worsen the situation. Ageing will result in a decline in Labour force. With the reduction in the labour force, the tax base of the government will shrink (since reduction in the labour force reduces the number of tax payers), in a situation where many budgetary allocations are needed to look after needs of the elderly. Huge budget deficits, coupled with inflationary situations in the country, will put more pressure on the government and similarly on the work force. On the other hand, the government as well as policy makers need to pay more attention on social security of the elderly group. Pension schemes, insurance schemes, banking facilities focusing elderly, health and other such facilities are urgent musts.

Changes in the three functional age groups (Children, working age and old) may have effects on dependency of the country. Hence changes in child dependency, old dependency and the combination of the above two, the total dependency are expected to changing in time to come (See Table 2).

Accordingly we can observe the fact that child dependency of Sri Lanka is declining. The significant change will be with regard to old age dependency. Old age dependency which was 14.3 will increase to 92.8 by 2101, as projected. Inline with changes in Child dependency and old dependency, total dependency will increase, putting more pressure on working age population. Population ageing is treated as a burden, since we tend to believe that the elderly people are unproductive, dependent on those who work, and old people need money for their health facilities and care in the old age. However with ageing, people become less efficient, and thus, their value added to output will decline. With regard to most South-Asian countries, ageing seem to be a rural phenomenon where only a small proportion engaged in wage paid employment. Yet, those who are employed in the agricultural sector will work as long as they can. However, their productivity is believed to decline as they become older. On the other hand, the urban old scenario will be different. Those who retire at age 55 or 60 may continue to live 10-15 more years without employment. Thus, there will be more pressure on those who earn since it is their responsibility to look after aged parents. The old age needs more care and health facilities. The urban nuclear family will shift somewhat towards the extended family, giving rise to social consequences.