AmCham Romania warns new pension law poses risk for budgetary and macroeconomic imbalance

The American Chamber of Commerce in Romania (AmCham), which represents 430 companies, expressed concern in a statement today regarding the significant increase of the social security expenses that the pension law draft, recently approved by the Romanian Government, levies on the general consolidated budget.

“We believe that is mandatory for the presentation and consultations around this draft legislation with a major budgetary impact, to include information about the financing sources of the related increases, in accordance with the provisions of Public Finances Law no. 500/2002 and Fiscal Responsibility Law no. 69/2010,” AmCham writes.

The organization says there is “an obvious lack of economic sustainability of the increased expenses generated by this draft legislation, up to a level that poses high risks for budgetary imbalances beyond the limits set by Romania’s European commitments and beyond the financing capacity of the Romanian economy.”

“With no clear financing sources identified, such measures are likely to be followed by hasty budgetary amendments, such as significant tax increases and/or massive cuts of expenses, most often of the investment allocations, critical for a healthy economic growth,” the statement reads.

By introducing presumably permanent increases of the expenses related to pensions and maintaining their financing from the social contributions of current employees and other type of contributors to the social contributions budget (the Pay-as-you-go system), the impact analysis for this legislative draft must consider not only the immediate impact, but also the long-term impact on the sustainability of the public pensions’ fund, according to AmCham. “This is critical given the demographic projections for Romania that indicate an accelerated ageing of the population and implicitly the rapid deterioration of the ratio between the number of employees (or, more generally put, the number of contributors to the social insurances budget) and the number of retirees.”

“In our view it is equally important that the initiators’ of this draft legislation will also consider the principle of inter-generational equity. Otherwise, the sole implementation of the pensions’ increase, without complementary measures to ensure the short, medium and long term sustainability, has the potential to increase the social tensions, to affect the social solidarity principle, which should be symmetrical, as well as to affect the country’s macroeconomic situation,” they write.

AmCham therefore calls for the Romanian Government, as an initiator of this legislative project, “to present a comprehensive and explicit analysis of its implications, and for the Parliament to prudently and responsibly examine its overall effects on the present and future generations, prior to passing the law.”