CROATIA – The Croatian government says it is committed to the sustainability of the pension system – and that the recent change in how pensions are indexed will be beneficial.

“The government is committed to ensuring the long-term sustainability of the pension system,” said top officials in a letter to International Monetary Fund managing director Rodrigo Rato.

Finance minister Ivan Suker and Croatian National Bank governor Îeljko Rohatinski said the change in the pension indexation formula would “ensure that the share of pension spending to GDP continues to decline in the medium-term”.

In March the government revised the indexation formula to link pensions to wages instead of to the average of prices and wages.

But the IMF commented that, while the new indexation formula did not threaten sustainability, “linking nominal pensions to real wages might increase the volatility of pensioners’ benefits”.

And Croatia said it intended to honour a 1998 Constitutional Court decision on ‘pensioners' debt’. The IMF said the size of this was “unclear and, depending on the means used to repay it, could prove costly”.

The Croatian officials said: “We plan to consult with the staff of the IMF and the World Bank before determining the details of this solution and moving to the implementation stage.”

“More generally, we are strongly committed to reviewing all aspects of the pension system and continuing the reform process, in order to maintain its financial sustainability, stimulate private savings, and encourage financial market developments.”