Impact of Demographic Ageing on Sustainability of Public Finance in Serbia

Main Article Content

Aleksandar Zdravković
Ivana Domazet
Vladimir Nikitović


Population ageing is a global phenomenon without precedent in the history of humanity having implications in all facets of life. From an economic point of view, population ageing is certainly one of the biggest challenges of modern time. A consequence of these global demographic tendencies reflected in growing number of pensioners which negatively affects sustainability of public pension systems financed by the principle of intergenerational solidarity (Pay-As-You-Go) - widely represented in public pension schemes of European countries.

In this paper, impact of demographic ageing on pension systems is analyzed in the context of sustainability of public finance in Serbia in the period 2010-2050. Although the comparative analysis of the pension expenditure share in gross domestic product (GDP) does not point to significant differences between Serbia and the countries in the neighborhood and the European Union, the growth trend of subsidizing the Pension Fund from the government budget endangers medium-term sustainability of the public pension system in Serbia, bearing in mind that the implementation of measures proposed in pension reforms can be valorized only in the long run.

The main objective of the analysis is projecting long-term pension expenditure as a share of GDP. The projections were formed indirectly by modeling the average pension expenditure, because this variable incorporates both growth in the total pension expenditure and growth in the number of pensioners as a result of demographic trends, and better reflects the actual growth of pension expenditure. For the purposes of the analysis, in addition to the projection of real GDP growth, size of the inactive population aged 65 and over, as the main contingent of the pension system users and the total number of pensioners, was projected by means of stochastic cohort component methodology. Based on these projections and assumptions about the growth rate of average pension expenditure (three scenarios), the projections of total pension expenditure (as a percentage of GDP) are produced for the period 2010-2050.

The results indicate that the growth rate of pension expenditure over the past few years is unsustainable in the long run. However, there is fiscal space for continuous real growth of pensions that does not jeopardize the budget deficit on the medium term, and leads to long-term reduction of the share of pension expenditures in GDP. The proposed change would not affect sustainability of the pension system and consequently public finance in Serbia, even in completely certain circumstances of significant increase in the number of elderly and their pressure on the workforce. In this context, critical review of the current government approach to the pension growth dynamics was given from the perspective of medium-term sustainability of pension system, which resulted in appropriate recommendations.

Generally, the intent of the Government of the Republic of Serbia on the indexation of pensions represent a good solution long term, but the premise of increasing pensions for a part of real GDP growth, if it is higher than 4%, is subject to criticism from the point of view of medium-term sustainability. The crisis cycle of the Serbian economy, similarly to that on a global level, has its maximum and minimum phase. After a maximum of the crisis is reached, there should be a few years of economic stagnation followed by gradual, and then by faster economic growth. Due to the projection of a relatively higher rate of economic growth and GDP in a future economic recovery, there is an increased risk that such a growth could be followed by sudden jumps in the growth of pensions, which could result in unsustainable funding of pension system. Therefore, the Government should impose some limitations in terms of the maximum increase in pension per annum in case of intensive and high economic growth.


Download data is not yet available.

Article Details

How to Cite
Zdravković, A., Domazet, I., & Nikitović, V. (2012). Impact of Demographic Ageing on Sustainability of Public Finance in Serbia. Stanovnistvo, 50(1), 19–44.


BIJAK, J. et al. (2007). "Population and Labour Force Projections for 27 European Countries, 2002-2052: Impact of International Migration on Population Ageing", European Journal of Population, no.23, pp.1-31

EUROPEAN COMISSION (2010a). Joint Report on Pensions (Brussels).

EUROPEAN COMISSION (2010b). Joint Report on Pensions: Annexes (Brussels).

EUROPEAN COMISSION (2010c). Work Session on Demographic Projections. Methodologies and Working Papers. Eurostat. Lisbon 28-30 April 2010.

EUROPEAN COMISSION (2011). The 2012 Aging Report: Underlying Assumptions and Projection Methodologies (Brussels).

EKONOMSKI INSTITUT ZAGREB (2006). Analiza dugoročnih fiskalnih učinaka demografskih promjena – sažetak studije (Zagreb: Ekonomski institut).

FISKALNI SAVET Republike Srbije (2012). Predlog mera fiskalne konsolidacije 2012-2016. godine (Beograd),

FOND PIO (2011). Glas osiguranika, br. 23/11 (Beograd: Fond PIO).

HUNSINGER, E. (2011). "An Expert-Based Stochastic Population Forecast for Alaska, Using Autoregressive Models with Random Coefficients (working paper)". Alaska Department of Labor and Workforce Development.

KUPISZEWSKI M., D. KUPISZEWSKA, V. NIKITOVIĆ (2012). Impact of Demographic and Migration Flows on Serbia (Belgrade: International Organization for Migration).

LANZIERI G. (2010). Looking 50 Years Ahead: A Natural Projection of the Populations of the Balkan Countries to 2061. IVth International Conference of Balkans Demography. Budva, Monténégro, 13th – 15th May 2010.

LUTZ, W., V. SKIRBEKK, M. R. TESTA (2006). "The Low Fertility Trap Hypothesis: Forces That May Lead to Further Postponement and Fewer Births in Europe". Vienna Yearbook of Population Research, pp.167-192.

MMF (2011). Hard Choices in Reforming Serbia’s Pension System. Danas conference, 21st September (Belgrade).

MILADINOV, G. (2010). Projections of the Population and the Pension System in Republic of Macedonia. European Population Conference 2010 (Vienna).

MINISTARSTVO FINANSIJA REPUBLIKE SRBIJE (2010). Revidirani memorandum o budžetu (Beograd).

MINISTARSTVO FINANSIJA REPUBLIKE SRBIJE (2012). Bilten javnih finansija, br. 89 (Beograd).

MINISTRARSTVO FINANSIJA I PRIVREDE REPUBLIKE SRBIJE (2012). Stanje i struktura javnog duga - Novembar 2012. (Beograd: Uprava za javni dug).

NIKITOVIĆ, V. (2010). Demografska budućnost Srbije: Imigracija kao izvesnost? (Beograd: Službeni glasnik, Institut društvenih nauka).

NIKITOVIĆ, V. (2012). "Šta je danas optimistički scenario demografskog razvoja Srbije?", Pomeraćemo granice – 55 godina IDN (Beograd: Institut društvenih nauka).

RZS (2011). Projekcije radne snage Republike Srbije 2010-2050 (Beograd: Republički zavod za statistiku Srbije).

SEKULIĆ, Lj. (2005). "Projekcije stanovništva Srbije, 2002-2032", Statistička revija, 54(1-4), pp.96-105.

SVETSKA BANKA (2007). From Red to Gray (Washington).

ŠUKOVIĆ, D. (2009). "Stanovništvo Srbije u fokusu tržišta rada", Stanovništvo 47(2), pp. 85-99.

USAID (2010). Postkrizni model ekonomskog rasta i razvoja Srbije 2011-2020. (Beograd: Ekonomski institut, Fond za razvoj ekonomskih nauka).

VLADA FEDERACIJE BOSNE I HERCEGOVINE (2008). Predlog strategije reforme penzijskog sistema u Federaciji Bosne i Hercegovine (Sarajevo).

VLADA REPUBLIKE SRBIJE (2012). Zakon o dopuni zakona o penzijskom i invalidskom osiguranju.

VLADA REPUBLIKE SRPSKE (2010). Predlog strategije penzijskog sistema u Republici Srpskoj – izvod (Banja Luka),

ZAMAN, K., M. MARKOVIĆ (2011). "Assessing the Public Finance Sustainability", Handbook of Public Finance Analysis, (Beograd), pp.123-136.

ZSCG (2008). Demografski trendovi u Crnoj Gori od sredine 20. vijeka i perspektive do 2050. godine (Podgorica: Zavod za Statistiku Crne Gore).

Most read articles by the same author(s)

1 2 > >>