Romania relies on emergency funds to pay pensions in December

By bne IntelliNews December 10, 2018

Romania’s government has decided to transfer RON43mn (nearly €10mn) to the labour ministry from the special reserve fund at the disposal of the government to be used for emergency situations, according to Digi24. The money will be used to pay some pensions.

"The expenditure [on pensions] was higher than initially estimated, due to the fact that more people retired than expected, but also because of the increase from 1% to 1.1% of the fee paid [to the postal services company Posta Romana] for the disbursement of the money to recipients, in line with the provisions of article 8 of emergency decree 102/2018,” Minister of Labour Marius Budai explained.

Although the situation of the social security system has not deteriorated dramatically this year, the social spending-to-GDP ratio bottomed out in 2016. It will keep rising, probably at a faster rate, in 2019 depending on the severity of the economic slowdown. 

The new income taxation system makes comparison irrelevant, but the transfers to the social security funds in January-October this year (latest data available) were less than half of the transfers last year. In absolute value, the transfers were only some 0.5% of GDP or 10% of the total social security budget, meaning that the other 90% is covered by contributions.

The social security expenditures increased by 12.1% (or by RON9.2bn, the equivalent of 1% of GDP) to RON85.1bn (9.0% of the full-year’s expected GDP up from 8.8% of GDP one year earlier) in January-October, according to the finance ministry. Notably, social security spending as a share of GDP has not increased dramatically from last year.

The transfers from the central government to the social security system accounted for only RON4.77bn (0.5% of the year’s projected GDP) compared to RON11.6bn transfers last year. Part of the transfers, until this year, were in fact contributions paid by the employer. Staring January 2017, only the employee pays contributions to social security funds.

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