|The appropriation of OFE assets will result in improving the fiscal balance by some 1 percent of GDP, but only short-term|
According to bank JP Morgan changes in the open retirement funds (OFEs) will improve the fiscal balance by some 1 percent of GDP a year, but this will be a short-term effect. The changes won’t help Poland escape the European Commission’s excess deficit procedure before the end of 2014.
In order to do that Poland would have to reach a headline deficit target of 3.6 percent and 3.0 percent of GDP in 2013 and 2014. If Poland does not escape the excess deficit procedure, the EC could impose sanctions on the country such as a mandatory non-interest-bearing deposit with the EU.
The government plans to transfer the bond part from OFEs to the state-controlled social security system (ZUS), introduce a voluntary membership as well as a gradual transfer of assets from OFEs to ZUS ten years before retirement. JP Morgan estimates that 75 percent of OFEs members will decide to transfer their assets to ZUS.
What the bank considers a major drawback of the reform is the fact that state pensions are raised arbitrarily, usually by “more than the yield on treasury bonds held by OFEs, which will lead to an increase of the state's future pension liabilities and reduce long-term fiscal benefits of the reform,” JP Morgan wrote in a weekly comment.
The bank considers lowering the debt-to-GDP ratio as the main motive behind the move. Its major short-term effect will indeed be a reduction of public debt by some 7.5 percent of GDP.
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