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IPE special report May 2018

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Slovakia says pension reform is on track

The recent collapse of Slovakia’s governing coalition will not endanger the country’s pension reform programme, according to finance minister Ivan Miklos. However, a leading Slovak think-tank has questioned this assertion.
On the fall of his right-of-centre government, prime minister Mikulás Dzurinda promised not to proceed with further privatisations. This has thrown sell offs worth up to €2.5bn into doubt.
The government had pushed through a far-reaching reorganisation of the pensions system, including parametric changes to the first pillar and the introduction of a mandatory funded second pillar.
The second pillar is funded by employers, which continue to pay 18% of a gross wage to the social insurance agency, the Socialna Poistovna, that runs the PAYG system, and it in turn transfers half to the pension company chosen by those who have opted to join the second pillar.
The success of the reform rested on the number of employees who joined the system. In the event the take-up was greater than anticipated. By the end of the first year some 1.2m out of an economically active population of 2.1m had joined, compared with the most optimistic forecasts of 800,000.
However, the success has caused problems to the Slovak budget as contributions to the PAYG state system have been redirected to the pension funds. The government had made it clear it intended to make up the gap through the privatisations proceeds.
Miklos and the state pension administration have claimed that the $2.7bn (€2.3bn) proceeds from the 2002 sale of a 49% stake in Slovak gas company SPP to a consortium of Gaz de France, Gazprom and Ruhrgas, will enable the pensions shortfall to be met for the next two to three years.
But according to Martin Chren, director of local think-tank FA Hayek Foundation, if the next government wants to preserve the second pillar in its present shape it will have to continue selling state assets, increase government debt or raise payroll taxes.
The privatisations that have been put on hold include the €840m
acquisition of a 66% stake in Slovenske Elektrarne, the dominant power generator, by Italy’s Enel, Austrian Railways’ €370m takeover of rail freight enterprise ZSSK, Vienna Airport’s €300m acquisition of Bratislava and Kosice airports, and less advanced deals for the sale of three electricity distributors and six municipal heating companies.
The Socialna Poistovna was due to begin drawing down some SKK2bn every month from the more than SKK70bn arising from the SPP sale that is held in a National Bank of Slovakia account and earmarked to cover costs of implementing the second pillar.

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