EC: Romania’s pension expenditure could make up half of the state budget in 2060

According to the sustainability analysis carried by the European Commission, the long-term budgetary impact of ageing would come out significantly above the annual costs of current financial and economic crisis making the effects look insignificant in contrast with the negative demographic effects.

“Public expenditures on state pensions will increase in average from 10.2% of GDP (in 2010) to 12.5% (in 2060) on reduction of birth rates and ageing. In this general context, Romania is among countries with the most unsustainable pension public finances in European Union, the pension expenditures as weight in the GDP being expected to double by 2060, from 8.4% in 2010 to 15.4%”, report shows.

In 50 years, Romania will be EU’s fifth biggest spender on pensions as share of GDP, being outstripped only by Greece, Luxembourg, Slovenia and Cyprus.

The sustainability analysis shows that Romania has a sustainability gap (S2) of 9.1% of GDP, which is significantly above the EU average (6.5% of GDP). This means that to put public finances on a sustainable path, Romania should improve its structural primary balance in a durable manner by 9.1% of GDP. The sustainability gap is largely driven by the increase in age-related expenditures.

Romania should improve its structural primary balance in a durable manner by 9.1% of GDP. In principle, this adjustment could take place via both an increase in revenues and cuts in expenditure. Alternatively, the social protection system (in particular public pensions and health care) would have to be reformed to decelerate the projected increase in age-related expenditure.

“For Romania, the report of the European Commission highlights two main issues: The first is that the public pension system is unsustainable and needs to be rapidly and efficiently reformed, including by speeding up the development of private pensions, or otherwise we would end up spending half of the state budget on pensions, compared to only a quarter today. The second conclusion is that the private pension system that has been recently introduced in Romania and that runs for 10-15 years in Central and Eastern Europe has good results, it runs properly and reduced the pressure exerted over the public pension system, which would be the exact reason why it’s been implemented in the first place”, said Crinu Andanut (photo), chairman of APAPR.