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The IMF (International Monetary Fund) has warned Spain that it will need to introduce further reaching pension reforms in it's defecit reducing measures if they are to escape the grip of the failing eeconomy.
The IMF's comments were made in its consultation notice with Spain, who went on to note how the Spanish economy has shown slights signs of recovery since Q1 2010, as the country has made efforts to reduce the cost of its pension system and to regulate its banking sector by forcing lenders to meet minimum capital requirements.
However the IMF also pointed out further causes for concern.
The Institution noted that the costs associated with an ageing population are expected to increased by 9% of GDP over the next 50 years. They stressed how a pension reform and a balanced budget would ensure longer-term sustainability, and it put forward a number of suggestions of how this could be acheived.
For one, the transition period could be shortened and incentives for early retirement further reduced, they commented. Furthermore, the link of pension parameters to life expectancy (the sustainability factor) could be made automatic, and the reference period extended to life-time earnings.
However, the IMF also held that securing long-term sustainability may call for additional adjustments to attain Spain's medium-term objective of a balanced budget over the period, and further reforms to address the pressures from ageing, specifically healthcare.
Earlier in July, parliament approved the proposed pension reform, which intends to increase the statutory age of retirement from 65 to 67 gradually between 2013 and 2025.
The new pension reform also aims to increase the number of years to calculate the earnings base from 15 years to 25 and the number of contribution years to qualify for the full pension from 35 years to 38.5.
The IMF estimates the reform recently introduced will cut spending by about 2% of GDP by 2050, while further pension measures could help to reduce spending by 3.5% of GDP.
