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The Government of the Republic of Serbia

In the service of citizens

World Bank approves loan for pension system reform

Belgrade, 14 February 2006

Serbian Minister of Finance Mladjan Dinkic said today that the World Bank has approved an interest-free loan worth $25 million to the Serbian government, in support of a five-year project of reform of the pension system which should improve the system of collection of contributions and improve administration.

Speaking at a press conference at which the project for consolidation of contributions collection and reform of pension administration was presented, Dinkic explained that the project's aim is to enable Serbia to make savings over the next decades, which would allow for stable financing of pensions.

The basic purpose of the project is to fully integrate information systems of the three existing pension funds and the Tax Administration, and to increase the amount of contributions collected for pension insurance, Dinkic explained. He pointed out that according to estimations of the World Bank and Serbian government experts, only 60% of contribution are collected, whereas the potential is much bigger.

Estimations of the World Bank show that the new system of contributions collection could enable Serbia to save as much as 3% of GDP in the next 20 years, which calculated at the present level of GDP is approximately 60 billion dinars.

The Minister said that the idea is to integrate the collection of income tax into that system, in this way a single central registry of payers of contributions and payment per concrete beneficiary would be created.

Dinkic stressed that last year’s reform of the pension system has solved the problem of stable financing of the pension system for the next five to ten years, but he added that new reforms are necessary because of the ever increasing number of employees that are supporting pensioners.

He presented statistics showing that there are 1.45 employees for one pensioner in Serbia, and that the income of the Pension and Disability Insurance (PIO) fund on the basis of contributions in the period from 2001 to 2005 increased 2.5 times, while transfers from the budget increased 3.6 times because of higher expenditure.

Caroline Junger

Serbian Minister of Labour, Employment and Social Policy Slobodan Lalovic said that the realisation of the project has already begun with the formation of working groups that deal with specific questions, and stressed that concrete results of its implementation can be expected by the end of the year.

Head of the World Bank Office in Serbia-Montenegro Caroline Junger said that the project is important because it will allow money to be saved and improve services for users.

Junger said that the Serbian government has initiated an extraordinarily brave reform of the pension system, but added that there still are significant problems that need to be solved and that the pension system is still a burden to the government’s fiscal accounts.