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IMF warns Slovenia pension reform is critical to fiscal stability

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SLOVENIA - The International Monetary Fund (IMF) has warned Slovenia comprehensive pension reforms in the country are “critical” to ensuring long-term fiscal sustainability.

In a statement outlining the preliminary findings from its latest mission to Slovenia, the IMF noted the country had been hit hard by the global crisis and that, while its policy response had been appropriate, the crisis had altered external financial conditions and Slovenia’s growth pattern needed to adapt to this.

The IMF recommended the country aim for “more balanced and sustainable growth in the future”, while the fiscal deficit should be reduced in a sustainable way in the medium term.

With regard to reducing the deficit, the IMF concluded implementing comprehensive pension reform was a key goal and “critical to ensure long-term fiscal sustainability”.

The IMF said changes were needed to address the adverse demographics of an ageing population, as age-related expenditure in Slovenia is already increasing in the short term and expected to reach 13% of GDP over the long term.

In particular, the IMF recommended any pension reforms include a delinking of pension indexation from wages, the increase in the minimum retirement age and eventually a transition from the current defined benefit scheme into a notional defined contribution scheme.

Last year, the Slovenian government put forward plans to try and increase incentives for private savings and to work longer through an increase in the retirement age.

However, the IMF claimed these measures would not be enough to ensure the long-term sustainability of the pension system. (See earlier IPE article: Growing private pensions not enough - IMF)

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