The new pension law could double Romania’s already sizable fiscal deficit, which could reach 8 percent of GDP by 2022, and raise external financing needs to excessive levels if it will be implemented as is without offsetting policy measures, International Monetary Fund (IMF) experts warn.

For 2019, IMF estimates a fiscal deficit of 3.7 percent of GDP in Romania. The government has enacted a new law that will double the pillar I pension benefits by 2022, without yet spelling out the budgetary implication of its implementation.

Starting from September 1st, two months before the presidential elections, the Romanian government already raised pensions by 15 percent hoping to gain some traction for its candidate Viorica Dancila. Experts warn that this measure could be the final hit to an already severely constrained budget in a period when there are rising fears of a new economic crisis. “If implemented as is without offsetting policy measures, the new law could double Romania’s already sizable fiscal deficit, substantially increase current account deficits and raise external financing needs to excessive levels,” IMF says in its latest 2019 Article IV Consultation staff report. According to the new law, pensions will rise in several stages, bringing about the additional fiscal expenditures of 3.2 percent of GDP by 2022 compared to those that would have taken place under the previous law. As a result, the ratio between the net average pension and net average wage is estimated to increase substantially from 42 percent in 2018 to 64 percent by 2022.

Read more @Business Review