Abstract

Sri Lanka’s publicly financed healthcare system faces growing fiscal pressure as the share of the older population rises faster, but country-specific long-run evidence on the size of this fiscal pressure remains limited. This study examines the long-run relationship between population aging and government healthcare expenditure in Sri Lanka using annual time series data from 1960 to 2023. The main objective of this study is to estimate the elasticity of government healthcare expenditure with respect to the share of the population aged 65 and above, life expectancy at birth, and Gross Domestic Product (GDP) per capita. The Autoregressive Distributed Lag (ARDL) cointegration approach is applied to investigate whether these variables significantly impact government healthcare expenditure as a percentage of GDP. The ARDL Bound Test confirms a long-run equilibrium among the variables. Results show that a one percent rise in the share of the population aged 65 and above increases government healthcare expenditure by 0.885 percent (p = 0.0416), confirming fiscal pressure from demographic aging. A one percent increase in life expectancy reduces healthcare expenditure by 4.051 percent (p = 0.0265), a result consistent with the compression of morbidity hypothesis where healthier populations require less curative care. GDP per capita shows no significant long-run effect. The error correction term (-0.570) indicates that 57 percent of any deviation from equilibrium is corrected within one year. Diagnostic tests confirm model robustness with no serial correlation, no heteroskedasticity, and stable parameters. The findings of this study have implications for Sri Lanka’s free healthcare system. Proactive fiscal planning, expanded insurance coverage, and preventive health programs are needed to reduce the aging-related expenditure pressure while extending healthy life years. Policymakers should focus on vaccination programmes, nutrition initiatives, and chronic disease screening that can reduce curative care costs and improve population health outcomes.

Keywords: Aging Population, ARDL Model, Government Healthcare Expenditure, Life Expectancy, Sri Lanka