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Pensions rise stirs deficit misgivings

Finance Minister Brigita Schmögnerová said she could not rule out dipping into state coffers to help social security company Sociálna poisťovňa (SP) make pension payments this year. The announcement came after parliament agreed September 7 to a 7% rise in pensions as of October.
Already struggling with billions of crowns of receivables, SP said it would be forced to dig into its reserves to make the payments after members of parliament (MPs) approved a rise 2% above that proposed by cabinet.
SP, which had budgeted for the 5% rise, would cut its reserve fund by 300 million crowns ($6 million) to 2.2 billion crowns this year to meet the payments, said Miroslav Knitl, the firm's general director.

Finance Minister Brigita Schmögnerová said she could not rule out dipping into state coffers to help social security company Sociálna poisťovňa (SP) make pension payments this year. The announcement came after parliament agreed September 7 to a 7% rise in pensions as of October.

Already struggling with billions of crowns of receivables, SP said it would be forced to dig into its reserves to make the payments after members of parliament (MPs) approved a rise 2% above that proposed by cabinet.

SP, which had budgeted for the 5% rise, would cut its reserve fund by 300 million crowns ($6 million) to 2.2 billion crowns this year to meet the payments, said Miroslav Knitl, the firm's general director.

He added that the increase would cost poisťovňa an estimated 1.4 billion crowns next year; the firm has also said the rise might jeopardise pension payments. "We are expecting the biggest problems to arrive at the start of next year," a statement from SP said.

The state budget deficit for this year is planned at 37.2 billion crowns ($744 million), around 4% of GDP, and does not include provisions for helping with pension payments. The government last year committed to meeting a target of 4% of GDP for its public finance deficit after recommendations from the International Monetary Fund.

It is also committed to lowering its public finance deficits to 2.5% by 2004 as a precondition to entering the European Union at that time, and as a condition of a recent 200 million euro loan from the World Bank. Its budget for next year, approved by cabinet at the end of last month, envisages a deficit of 3.5% of GDP.

The amount of money the coalition is ready to give for pensions is unclear, but some analysts are warning that the deficit next year could be seriously threatened.

"The state will have to guarantee SP's solvency, so obviously there would be an effect on the public finance deficit, and a threat of the deficit growing. There are only a few months of the year left now, so [the budget for] 2001 isn't that crucial, but next year will be very important. We'll have to see what effect this has on the [public finance] deficit," said Róbert Prega, analyst at Tatra banka.

Opposition MPs attacked the approval of the rise, saying the increase was too little. Some also claimed that a special meeting of the parliamentary committee for social affairs had been called at a time that prevented some MPs from voting on the pension proposal. The committee recommended that a 7% rise be accepted after the Movement for a Democratic Slovakia (HZDS) and trade unions proposed 12% and 10% increases respectively.

Reform in doubt

The problems at SP and its possible consequences for the state budget come as the coalition prepares to implement reforms to the Slovak pension system. Under the planned reforms a new 'three pillar' system of payments would be introduced incorporating payments from the state, company pensions and private supplementary pensions.

Under the terms of the 200 million euro World Bank loan, the government is bound to at least begin reform of the state welfare system. Schmögnerová has already said that much of the proceeds from the privatisation of a 49% stake in gas firm SPP later this year will be used for pension reform.

However, some political and economic analysts have warned that with less than a year to go before parliamentary elections the government may falter in implementing what could be politically unpopular reforms.

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