The Slovenia Times

IMF: Pensions, Welfare Biggest Challenge for Consolidation


The report also points to some cases of inefficient spending in education.

The report compiled by the IMF Fiscal Affairs Department says that Slovenia's public finances remain "in a troubled state" and that additional measures are required to balance public finances in order for Slovenia to reverse the trend of growing public debt.

The IMF reiterated that fiscal consolidation efforts in Slovenia so far have been mostly focused on short-term austerity measures and horizontal, across-the-board cuts, that will be difficult to rely upon in the future.

The absence of comprehensive structural reforms, along with the growing pressure in the public to reverse short-term austerity measures, point to the need for a more comprehensive review to stop the rise in expenditure levels, the report says.

The increase in public expenditure by over 5%t of GDP since 2008 is a consequence of current spending, rather than investment expenditure. In this context the IMF points out that "Slovenia's wage bill is high relative to comparators, and amongst the upper quartile in the EU".

The IMF warns that the already high and still growing share of expenditure for pensions and social benefits (which is currently close to 20% of GDP) is the biggest challenge for sustainability of the country's public finances.

The main reason for this are the rapidly ageing population and "generosity of existing schemes", the IMF says, adding that the latest pension reform only "served to temporarily constrain spending pressure".

According to the report, further measures are needed to ensure that a viable pension system can be sustained over the long-term, including tax treatment of pensions and further restrictions on early retirement.

The IMF believes that these and other potential reforms of the pension system could produce savings of 0.6% of GDP in the short term, and of 2.6% of GDP by 2050.

The situation is somewhat better when it comes to expenditure for social benefits, as measures are more targeted, resulting in relatively low poverty rates amongst the population aged under 65. The rate is meanwhile relatively high in the 65+ age group due to early retirement and consequently, lower pensions.

When it comes to education, the IMF points out that spending in the sector is the fourth highest in terms of GDP share in the EU with the greatest inefficiencies identified in primary and secondary levels.

The high spending is a consequence of relatively high wage bills, while capital spending is mostly in line with EU averages, "suggesting an oversized sector in terms of employment".

According to the report, the low student-teacher ratios in Slovenia suggest there could be room to reduce staff levels without negatively affecting education outcomes. One of the proposals is to merge small schools and transfer teachers to areas with high demand.

Branimir Štrukelj, the head of the teachers' union SVIZ, meanwhile told the daily Dnevnik that the education sector had suffered the biggest number of cuts in the public sector and that teachers could not shoulder additional burden without quality being affected.

"The number of children in primary schools has been increasing for four years in a row, while the number of employees is being reduced by one percent annually. Teachers are overloaded. And when the consequences become obvious, it will be too late," he said.

According to Štrukelj, the IMF is also disregarding the geographical features of Slovenia and its attempts at centralisation, which are being hindered by the developed network of schools. In remote areas, these also stand for cultural centres which connect the people, he added.

Education Minister Maja Makovec Brenčič raised a similar point. "The current geographical distribution, the local importance of schools, and the increasing generation size need to be taken into account," she said after the cabinet session.

She said the IMF made recommendations that were being "treated as such".


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