Transcript Pension Recommendations

Main Messages
1. Political problems and government structures
are serious impediment to effective public
expenditure planning and execution.
2. Many opportunities for improving overall fiscal
management and sectoral spending:
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Pensions and social transfers
Public sector wages
Health
Education
Forestry
Energy
Political Challenges and Government Structures
1. Significant duplication and parallelism in the
structure of public sector institutions.
2. Serious weaknesses in high level coordination
and decision-making in the allocation of public
resources.
3. The greatest gains in efficiency in the provision
of public services must come from addressing
these problems.
Fiscal Diagnostic
1. The public sector is too large.
2. The tax system involves significant economic
distortions particularly because of high labor
taxation.
3. Both revenue and expenditure reforms are
needed.
4. Fiscal policy needs to reflect the currently very
constrained access to international finance and
the limited development of local financial
markets.
Fiscal Recommendations
1. Strengthen the role of the Fiscal Council.
2. Reduce the magnitude of the tax burden on
labor while maintaining fiscal sustainability.
3. Reshape public expenditures which at present
are excessively concentrated on current.
spending including wages, pensions and social
transfers.
4. Reverse the excessive growth of the public
sector.
Pension Diagnostic
1.
2.
3.
4.
5.
High benefits.
High dependency ratios.
Low contributor numbers.
Large numbers of early retirees.
Inappropriate scaling and qualification
criteria for disability benefits.
6. Significant unfunded “privileged” pensions.
7. Complex system of “coefficients” (FBH).
Iceland
Australia
Ireland
Canada
New Zealand
Netherlands
Norway
Israel
United Kingdom
Denmark
United States
Switzerland
Luxembourg
Sweden
Spain
Finland
Japan
Belgium
Bosnia Fed
Germany
Portugal
Greece
Austria
France
Italy
High Pension spending
as share of GDP (FBH)
16
14
12
10
8
6
4
2
0
France
Italy
Bosnia Fed
Germany
Austria
Finland
Portugal
Sweden
Greece
Spain
Belgium
Japan
Luxembourg
Norway
New Zealand
Denmark
Canada
Ireland
Netherlands
United States
High Dependency Ratio FBH
100.0%
90.0%
80.0%
70.0%
60.0%
50.0%
40.0%
30.0%
20.0%
10.0%
0.0%
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Armenia
Azerbaijan
Albania
Bosnia and …
Bosnia Republika …
Kyrgyz Republic
Turkey
Moldova
Macedonia, FYR
Montenegro
Serbia
Ukraine
Romania
Kazakhstan
Russian Federation
Croatia
Poland
Bulgaria
Slovak Republic
Hungary
Lithuania
Slovenia
Belarus
Czech Republic
Estonia
Latvia
Uzbekistan
Low Numbers of Contributors as Percent
of Working Age Population
Pension Recommendations (FBH)
1.
2.
3.
4.
5.
6.
7.
8.
Revamp the benefit structure, eliminating the coefficient
system.
Introduce strict curbs on early retirement.
Establish actuarial pension reductions for those who retire
early.
Eliminate double-dipping between war-related benefits and
pension fund benefits.
Tighten the eligibility conditions for disability and revamp
the benefit structure to correspond with the new old age
structure.
Provide survivor pensions only at retirement age and
withdraw them if remarriage occurs.
Separate privileged pensions from the general pension pool,
fund them separately and align them more closely with
general pensions.
Limit benefit indexation to prices rather than wages.
Pension Recommendations (RS)
1. Introduce strict curbs on early retirement.
2. Establish actuarial pension reductions for those
who do retire early.
3. Eliminate double-dipping between war-related
benefits and pension fund benefits.
4. Revise the disability benefit formula to provide
higher benefits for the fewer people who will
qualify as disabled.
5. Provide survivor pensions only at retirement age
and withdraw them if remarriage occurs.
Social Transfers Diagnostic
1. High and fiscally unsustainable.
2. Dominated by programs for veterans.
3. Poorly targeted.
ST Spending Across Countries
BiH 10
*Hungary 08
Croatia 08
*EU 08
Romania 08
Russia 08
*Slovenia 08
Ukraine 08
Belarus 08
Albania 08
*Estonia 08
Serbia 08
*Slovakia 08
Lithuania 08
Kosovo 08
Moldova 08
Bulgaria 08
Georgia 08
Montenegro 08
Armenia 08
FYR Macedonia 08
Azerbaijan 08
*Poland 08
Turkey 08
Kyrgyz Republic 08
Latvia 08
Tajikistan 08
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
Social Transfer Recommendations
1. Avoid addition of new benefits.
2. Revise the current Law on Basic Elements of Social
Protection in FBH to support better targeting.
3. Undertake legal, administrative and fiscal measures to
curtail the costs of the veterans’ benefits by enforcing
the legislation which was adopted on paper and
scheduled for enactment as of January 2011.
4. Develop updated tools to improve the targeting of noncontributory benefits for civilians aimed at reaching the
poor and most vulnerable.
ST Recommendations (continued)
1. Develop effective targeting mechanisms for
veteran benefits.
2. Diversify the support for veterans who would
lose cash benefits as a result of reforms.
3. Introduce design changes in the social
assistance programs to eliminate work
disincentives.
4. Improve the cost-efficiency, transparency and
accountability of benefit administration.
5. Step up eligibility audit efforts.
Public Sector Wage Diagnostic
1. At close to 13 percent of GDP the public
sector wage bill is not sustainable
PS wages as share of GDP
14
12
10
8
6
4
2
0
2007
2008
2009
2010
Wage Recommendations
1. Institute meaningful establishment controls.
2. Rationalize the large number of currently vacant posts
and cut wage bill appropriations accordingly.
3. Systematically monitor staffing numbers to ensure the
observance of establishment and hiring controls.
4. Regularly monitor employment and pay levels in
sectors other than the public administration, as these
sectors make up the bulk of public employment.
5. Reduce the cost of various salary increments:
• Abolish discretionary fees
• Eliminate universal entitlements to allowances
• Restrict allowance eligibility
Wage Recommendations (continued)
1. Cut other categories of recurrent spending
related to staff numbers, such as official travel,
rental of buildings, and telecommunications.
2. Reduce the number of auxiliary staff by
outsourcing these functions or transferring these
employees to labor law contracts.
3. Increase flexibility in negotiations with public
sector trade unions to avoid disorderly wage bill
cutbacks in the future.
4. Improve coordination in wage bill planning in the
Fiscal Council.
Health Diagnostic
1. Expenditure growing unsustainably.
2. Contribution rates are high.
3. 50 percent of those covered are exempt from
contributing.
4. Arrears mounting (especially in RS).
5. High private out-of-pocket payments.
6. High drug costs.
Health Recommendations
1. Expand the insurance risk pool related to
hospital and pharmaceutical care.
2. Review exemptions from contributions and
consider shifting the collection and control of
health contributions to at least the entity level
to help improve collection.
3. Address health sector arrears.
4. Reduce fragmentation and duplicate functions.
Health Recommendations (continued)
1. Leverage family medicine reforms to
increase Primary Health Care productivity
and increase preventive medicine.
2. Consider hospital financing reforms e.g.
Diagnostic Related Groups.
3. Centralize procurement of drugs to at
least the entity level.
Education Diagnostic
1. Overall spending is not excessive.
2. Allocation of spending within the sector needs
refinement and is affecting efficiency.
3. Wage expenditures are crowding out non-wage
spending.
4. Upper secondary enrollment rates are very low
signaling quality problems.
5. BH’s student performance on international test
could be better if resources were used more
effectively.
Education Recommendations
1. Limit further teacher wage increases.
2. Develop a more decompressed wage structure.
3. Rebalance spending between school levels to enhance
pre-school and tertiary education and
4. Address the quality issues in upper secondary that are at
the root of low enrollment rates.
5. Introduce per capita financing of schools to replace the
existing the input-based financing system.
6. Establish an Education Management Information System.
Forestry Diagnostic
1. Forest resource is larger than previously
thought.
2. Could contribute more to the economy
perhaps as much as an additional 1.5% of
GDP.
3. Government plays a major role in sector.
4. Institutional and policy reforms are needed
to better exploit forest resource.
Forestry Recommendations
1. Improve road access to forests.
2. Identify and reduce unproductive labor in
public forest-sector institutions.
3. Invest significantly in human resources
especially in business and management
skills.
4. Implement institutional changes in FBH:
Forestry Recommendations (continued)
1. Have the larger Cantonal Forest Management
Companies and JPS Šume RS conduct a
comprehensive Business Process Review.
2. Develop a transparent and market-based
mechanism for timber sales.
3. Reset the overall level of the OKFŠ tax.
4. At this stage, privatization of forest
management companies is not judged to be a
sustainable option in BH.
Energy Diagnostic
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2.
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Large existing and potential future fiscal impact.
High degree of government ownership.
Large capital expenditure needs.
Problems in coal sector because of below-cost
pricing and large liabilities.
5. Power utilization is highly inefficient especially
for heating.
6. Without tariff reforms the sector cannot finance
needed invest and will continue to burden the
budget.
Energy Recommendations
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2.
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Continue the restructuring and modernization of coal mines.
Continue restructuring of the electricity sector and set tariffs at
their full cost-recovery levels, while putting in place targeted
social protection mechanisms to protect vulnerable groups.
Prepare and adopt an investment strategy for each of the power
utilities based on a comparative least-cost investment plan
Implement the energy efficiency program for public buildings
(schools and hospitals).
Develop a basic legal framework for implementation of energy
efficiency programs.
Establish a financing support mechanism for energy efficiency
investments.
Set up a comprehensive and systematic energy data gathering
and reporting system.
Conclusions
Reforms suggested in this report will help to:
• Reduce the overall size of the public sector
which is currently too large.
• Improve the efficiency of public service
delivery.
• Improve the efficiency of the revenue system.
• Reduce financing pressures which in the
current international environment are
constraining.