World Bank, IMF Concerned over Ukraine Pension Reform

The two institutions object to amendments made to proposed pension bill.

The World Bank and the International Monetary Fund (IMF) have sent a joint letter to the Ukrainian government expressing their concerns over a slew of amendments that were tacked on to the country’s pension reform bill.

“The revised draft law presented at the start of this week has been amended in a way that provokes significant concern at both the World Bank and the IMF,” the World Bank’s Satu Kahkonen said, according to Interfax Ukraine.

However, Kahkonen didn’t detail which amendments gave the the World Bank and IMF cause for concern, and why.

Last week, Ukraine Prime Minister Volodymyr Groysman said the proposed reform would prevent the deficit from jumping to more than 200 billion hryvnias ($7.57 billion) from the current level of 141 billion hryvnias.

“This reform is comprehensive, systemic, and will lead to an increase in the size of pensions,” he told parliament, according to Reuters.

According to the World Bank, the Ukrainian government spends more on pensions than almost any other country in the world. In 2016, pension expenditures were 11% of the country’s GDP.

“These are exceptionally high shares. Yet, the pension for two-thirds of pensioners is so low that they require a subsistence top-up, even with 35 years of contributions to the formal pension system,” wrote Kahkonen in a commentary in Russian newspaper Novoye Vremya in April. “The point of retirement has become for many the start of a survival race, as the average old-age pension is only about $2 per day. Pension benefits are low, differentiation of pensions according to contributions is minimal, and mechanisms for adjustment to the cost of living are inadequate.”

Ukraine has approximately 12 million pension beneficiaries, and 14 million contributors, although some contribute only part of the year. World Bank projections indicate that the number of Ukrainians entering retirement will be considerably larger than the number of citizens entering the labor market. Estimates also show that over the next couple of decades, the ratio of contributors to pensioners may fall to two-thirds.

In its original form, the draft law sought to increase contributions to the pension fund by requiring citizens to work a set amount of years before retiring. It also aimed to reduce the number of professions where workers can retire early, while raising the minimum pension.

The reforms, prior to the amendments, would have created savings of at least 3% of the country’s GDP over the long term.

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