Demographic headwinds: How Mauritius's aging lessons can offer insights for Pacific Islands.

Demographics Are Turning from a Growth Engine into a Heavy Burden

An IMF paper recently released in the *Selected Issues Papers* (2026, No. 081) analyzes in detail the impact of population aging on economic growth in Mauritius. The study shows that Mauritius has already passed the demographic inflection point: before 2017, the expansion of the working-age population made a positive contribution to growth; since then, aging, low fertility (a fertility rate of only 1.4 in 2024), and outward migration (especially of skilled workers) have together dragged the demographic factor into negative-contribution territory. By 2070, annual GDP growth could be lowered by about 2 percentage points, cumulatively leaving GDP nearly 50 percent lower and per capita GDP about 28 percent lower than in a scenario with unchanged demographics.

Although Mauritius is located in the Indian Ocean, its demographic transition path is highly similar to that of many Pacific island countries: fertility below replacement level, young people migrating abroad for opportunities, and a rapidly rising share of elderly people. Tonga, Samoa, Fiji, and others are facing or will soon face similar demographic changes. This article draws on the IMF's decomposition framework to explore the potential impact of these trends on the economies of the Oceania region and which policies could cushion the shock.

The Macro Background of Demographic Transition and Regional Linkages

Mauritius's total population has already begun to decline: it stood at about 1.24 million at the end of 2024 and could fall by nearly 30 percent by 2070. The old-age dependency ratio (population aged 65 and over relative to those aged 15–64) is rising sharply. These changes affect not only labor supply but also squeeze fiscal space through public spending channels such as pensions and health care.

For Pacific island countries, demographics are a core variable in economic resilience. New Zealand and Australia attract large numbers of Pacific island workers, especially skilled workers. In the short term, this migration pattern alleviates unemployment pressure in the island countries, but in the long term it may erode their human capital base. Like Mauritius, the island countries also face the twin challenge of "fewer and older": total population stagnating or declining while the working-age population share shrinks.

The IMF study notes that aging can dampen growth through multiple channels: shrinking labor supply, lower potential output, tighter public finances, weakened innovation vitality, and subdued investment. But not all effects are one-directional—healthy aging, higher labor force participation among older groups, and improved gender equality can partially offset the negative effects.

A Quantitative Framework: Distinguishing Population Size and Age Structure Effects

The IMF uses a growth decomposition method that breaks GDP into four factors: total population, the working-age population share, labor force participation, and labor productivity. Holding labor productivity and age-specific participation rates constant, it identifies three channels of demographic change: the total population size effect, the retirement effect (a declining working-age population share), and the age composition effect (lower participation rates among the young and the elderly).Research shows that by 2070, population decline accounts for about half of the drag, with the rest coming from the declining working-age share and changing age structure due to aging. The decline in per capita GDP is almost entirely driven by the contraction of the working-age share (contributing about 27 percentage points), while changes in age composition have a smaller impact (less than 2 percentage points).

This framework also applies to Pacific island countries. For example, Fiji has notable gender disparities in labor force participation, while Samoa's reliance on overseas remittances is closely linked to out-migration. By decomposing population and participation factors, policymakers can more precisely identify the sources of growth drags and design targeted interventions.

Policy Scenarios: Mobilizing Underutilized Labor

The IMF simulated three labor supply policy scenarios: raising labor force participation rates for women, older workers, and youth. The results show that these measures can partially offset demographic headwinds and improve debt dynamics, but cannot fully compensate. Notably, raising female labor force participation yields the largest growth gains, followed by older workers.

In Oceania, there is also significant room to raise female labor force participation. Many women in Pacific island countries undertake substantial unpaid work in the informal sector or in family care. Improving childcare support, flexible work arrangements, and eliminating employment discrimination can unlock potential labor. Experiences from New Zealand and Australia show that higher participation rates among older workers help alleviate labor shortages, but require supporting health protection and age-friendly working environments.

However, no single policy can fully reverse demographic trends. The IMF emphasizes the need to combine labor market reforms with broader productivity-enhancing measures. For island countries, this means investing in emerging areas such as education, digitalization, and renewable energy to enhance the capacity to generate more output with fewer workers.

Regional Implications

The case of Mauritius serves as a wake-up call for Pacific island countries: demographic transitions often arrive faster than expected. Although the demographic profiles of island countries vary widely (for example, Papua New Guinea is still relatively young), aging signs have already emerged in middle-income island countries such as Fiji, Samoa, and Tonga. Regional economic cooperation can play a buffering role:

• Labor mobility: Short-term labor schemes within the Pacific region (such as Australia's Pacific Labour Scheme) can help ease demographic pressures, but a balance between migration and skills development is needed.
• Fiscal coordination: Aging will push up health and pension expenditures. Island countries need to plan fiscal buffers in advance and explore regional co-financing mechanisms.
• Green economic transition: Renewable energy and climate-resilient infrastructure can create new job opportunities, attract young people to stay, and reduce dependence on fossil fuel imports.
• Data and knowledge sharing: The IMF's growth decomposition framework can be applied to Pacific countries, helping them quantify the impact of demographic trends on growth and thus design more evidence-based policies.

Long-Term Trends: The Next 3, 5, and 10 YearsOver the next three years, many Pacific island countries will continue to benefit from tourism recovery and infrastructure investment, but population pressures may begin to emerge. Over the next five years, as the growth rate of the working-age population slows, potential growth rates may naturally moderate. By the next ten years, if fertility rates remain below replacement levels and out-migration continues unabated, some island countries may enter a Mauritius-style “demographic headwind” phase.

Australia and New Zealand, as the region’s economic centers, will have external effects on Pacific island countries through their immigration policies. There is complementarity between the labor demand of Australia and New Zealand and the supply potential of the island countries, but long-term reliance on immigration is not a sustainable solution. Technological innovation and industrial upgrading are the fundamental pathways to raising labor productivity.