Romania’s Public Finances Among Most Affected By Population Ageing In EU

The impact of ageing over public finance in EU member states will make the effects of the economic and financial crisis seem insignificant, shows a report of the European Commission cited by APAPR.

According to the report, in the next 50 years, Romania's pension expenses will increase from 8.4% of the gross domestic product in 2010 to 15.8% of GDP in 2060, and the country will rank fifth in the European Union by the level pension expenses in the GDP.

The EC report shows Romania should reform its public pension system and develop the private pension system in order to reduce the impact of aging over public finances.

The European Commission's Sustainability Report for 2009 also shows the public pension systems in Europe are more and more unsustainable and the costs entailed by an ageing population will become a burden in the next 50 years.

In the overall context, Romania is among the EU states with the most unsustainable public pension system in the European Union and the country's public pension expenses will double until 2060, from 8.4% in 2010 to 15.4%.

The EC report shows Romania has a sustainability gap of 9.1% of the GDP and to put public finances on a sustainable path it must improve its structural primary balance by 9.1%. The biggest part of this sustainability gap, namely 7.4% of the 9.1% of the GDP, comes from the increase of public pension expenses.

Romania must reform public pension system and the health system to lower expenses triggered by age increases, the report said.

The country's population is estimated at 16.9 million in 2060, of which 53.6% will be working age population (15-64 years old), compared to 70% in 2010. The number of people over 65 that will depend on the working age population will thus grow from 21.3% in 2010 to 54% in 2060 and this will badly affect the public pension system.

The report highlights the fact that in the next 50 years Romania will spend half of the state budget on paying public pensions if it maintains the system in its current parameters.

Greece, Luxemburg, Slovenia, Cyprus and Romania do not have an effective private pension system and the public pension system will soon become a burden for public finances said the report, adding Romania registers the smallest contribution in the mandatory private pension system (Pillar II) in Europe, namely 2%.

According to APAPR head Crinu Andanut, the EC report's conclusion was Romania has an unsustainable public pension system that is in dire need of reforming and the country needs to develop more rapidly the private pension system in order to reduce pension expenses from the state budget. Romania has to accelerate contributions to the mandatory private pension system and to stimulate contribution to the voluntary private pension system by introducing bigger tax deductions.

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