Demographic Ageing and Macroeconomic Determinants of Public Healthcare Fiscal Sustainability in Malaysia: Evidence from the ARDL Approach

Fiscal sustainability in Malaysia’s public healthcare system has become increasingly important in the face of unprecedented challenges arising from population ageing and macroeconomic volatility. This study aims to analyse the factors affecting the fiscal sustainability of healthcare in Malaysia over the period from 1975 to 2024 using the Autoregressive Distributed Lag (ARDL) model. The Healthcare Fiscal Sustainability Index (HFSI) is used as the dependent variable, while the old-age dependency ratio, real GDP growth rate, labour force participation rate, life expectancy, healthcare inflation rate, and unemployment rate are included as independent variables. The analytical framework is based on three theories: Demographic Transition Theory, Wagner’s Law, and the Fiscal Space Framework. The results indicate that the old-age dependency ratio has the strongest and most statistically significant positive relationship with HFSI in both the long-run and short-run models. The compression of morbidity hypothesis is supported by the significant positive relationship between life expectancy and HFSI. Real GDP growth has a significant positive effect on HFSI in the long run, suggesting that the government should leverage economic growth to strengthen sustainable healthcare financing. Labor force participation is not statistically significant, while the unemployment rate is marginally significant. Overall, the findings indicate that demographic ageing represents a major challenge to the fiscal sustainability of Malaysia’s healthcare system and provide important insights for policymakers to implement proactive measures to ensure long-term fiscal sustainability.