Economy

Central bank head warns of biblical doom by pensions

Borrowing a verse from the Old Testament, Romanian Central Bank Governor Mugur Isărescu warned that the 40 percent increase for pensions planned for this September will capsize the already overburdened budget of the country.

“Let’s be serious about the numbers. There can only be a political solution, meaning that we have no financial or economic solution. If the economy grows by 4 percent, something cannot grow by 40 percent, especially if it is not some marginal thing, but something that affects half of the country’s population,” Isărescu said, adding that the planned increase should be treated with caution if Romania wants to avoid “traveling in a financial wilderness for 40 years.”

(See: “For the people of Israel walked forty years in the wilderness, until all the nation, the men of war who came out of Egypt, perished, because they did not obey the voice of the LORD; the LORD swore to them that he would not let them see the land that the LORD had sworn to their fathers to give to us, a land flowing with milk and honey.” Joshua 5:6)

A law passed last year by the previous Socialist government stipulates that the so-called “pension point” must be increased by 40 percent on September 1, 2020. The pension point is a basic pension level indicator, which by law must be indexed to the previous year’s inflation rate plus half of the average wage rise in the economy. The 40 percent increase comes on top of that.

Isărescu said the question cannot even be asked whether there is enough money for the planned pension increase.

“The fact that Romania has a budget deficit and not a budget surplus, means that there is no money.”

Last September, when the pension point was increased by 15 percent, the central bank’s lead economist, Valentin Lazea, said that according to the bank’s calculations, that increase alone added 0.3 percent of the GDP to the country’s budget deficit that year. He also noted that the next increase would add 0.9 percent in 2020 and 2.7 percent in 2021, meaning that instead of the targeted 3 percent, the budget deficit would be 4.5 percent of the GDP in 2020 and 5.7 in 2021.

“How much philosophy does this require? The solution is indeed difficult, but it can only be a political and social one,” Isărescu said.

Title image: Romanian Central Bank governor Mugur Isărescu

 

Author: Dénes Albert