Public Pension Spending Trends and Outlook in Emerging Europe Benedict Clements Fiscal Affairs Department International Monetary Fund March 13
Plan of Presentation I. Trends and drivers of public pension spending in emerging Europe II. Fiscal context and projected spending increases III. Risks to projections IV. Conclusions
I. Trends and drivers of public pension spending 3
Pension Spending Public pension spending has increased more in emerging Europe than elsewhere 1 Evolution of Public Pension Expenditures, 199 1 (Percent of GDP) 1 Emerging Europe 8 Advanced 6 Other Emerging 199 1 Note: Emerging Europe includes Bulgaria, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Russia, Turkey, and Ukraine. Other emerging includes Argentina, Brazil, Chile, China, Colombia, Egypt, India, Indonesia, Jordan, Malaysia, Mexico, Pakistan, Philippines, Saudi Arabia, South Africa, and Thailand. Advanced includes Australia, Belgium, Canada, the Czech Republic, Denmark, Finland, France, Germany, Greece, Iceland, Ireland, Italy, Japan, Korea, Luxembourg, the Netherlands, New Zealand, Norway, Portugal, the Slovak Republic, Slovenia, Spain, Sweden, Switzerland, the United Kingdom, and the United States.
with a number of countries recording substantial increases over the past - years Evolution of Public Pension Expenditures in Emerging Europe (Percent of GDP) Bulgaria Hungary Poland Turkey Ukraine 16 Estonia Latvia Lithuania Russia Romania 18 1 16 1 1 1 1 1 8 8 6 6 197 198 199 1 199 1 5
Aging Aging Aging Contribution to Spending Growth Higher replacement s and aging have been the drivers of pension spending Evolution of Public Pension Expenditures, 199 1 (Percent of GDP) 3 1.5 1.8.1 1 1.1.7.6.8-1 -.6 -.5 -. -. - -1.5-3 199-1 (Advanced) 199-1 (Emerging Europe) 199-1 (Other Emerging) 6
Spending (percent of GDP) Variation in spending reflects differences in aging, system generosity, and coverage s Pension Spending, Rates, and Aging, 1 UKR 16 FRA ITA AUT 1 8 SAU GBR CHN PHL MYS CZE ROM LVA HUN SVN RUS LTU BGR ARG SVK EGY IRL GER EST CHL TUR POL 5 3 35 5 5 55 6 65 Rate (percent of average wage) 1 1 1 16 Old-age dependency ratio=-1 68 Old-age dependency ratio=1- -8 1 Old-age dependency ratio=-3 Old-age dependency ratio=3-7
II. Fiscal context and projected spending increases 8
Ukraine Estonia Poland Russia Romania Slovenia Hungary Czech Republic Turkey Lithuania Bulgaria Slovakia Latvia Emerging Europe Other emerging Advanced In most of emerging Europe pensions absorb a large share of government spending Pension Spending, 1 (Percent of primary spending) 35 3 5 15 1 5 9
Ukraine Russia Slovenia Turkey Slovakia Romania Lithuania Czech Republic Hungary Bulgaria Estonia Poland Latvia Emerging Europe Other emerging Advanced and pension outlays are projected to rise sharply in some countries Increase in Pension Spending, 11 3 (Percent of GDP) 1 8 6 - - 1
especially beyond 3, potentially squeezing other spending that could support growth Ukraine Russia Slovenia Turkey Slovakia Romania Lithuania Czech Republic Hungary Bulgaria Estonia Poland Latvia Emerging Europe Other emerging Advanced Increase in Pension Spending, 11 5 (Percent of GDP) 1 8 6 - - 11
Aging Aging Aging Contribution to Spending Growth On average spending will increase because of aging Evolution of Public Pension Expenditures, 1 3 (Percent of GDP) 6.3.1.1 - -1. -1. -.3-1.5-1.8 -.3 -. -.6 -. - -6 1-3 (Advanced) 1-3 (Emerging Europe) 1-3 (Other Emerging) 1
Aging Aging Aging Contribution to Spending Growth despite enacted reforms affecting retirement ages and replacement s Evolution of Public Pension Expenditures, 1 3 (Percent of GDP) 8 7. 6 3.. - - -.9.. -3.1-1. -.9 -.3 -. -6-5.5-8 1-3 (Romania) 1-3 (Estonia) 1-3 (Poland) 13
III. Risks to projections 1
Considerable uncertainty and upside risks to projections Demographic risks High longevity (>1/ percentage point of GDP in 3 spending) Bulgaria, Czech Republic, Russia, Slovakia, Slovenia, Turkey, and Ukraine Other risks Reform reversal (Reform impact >5 percentage points of GDP in 3 spending) Hungary and Poland 15
IV. Conclusions Public pension spending has increased more in emerging Europe than elsewhere since 199 Pensions absorb a large share of primary spending Rising pension spending could squeeze out other spending needed to support growth Upside risks to projections and uncertainties, including whether enacted reforms will remain in place and will deliver expected outcomes 16
Thank you! 17