SPAIN – Whoever wins the election next year, reform of Spain’s pension system will be a key priority, says the International Monetary Fund.

And it called for a higher retirement age and stronger links between contributions and benefits.

“Another key structural reform that will need to be a priority of the incoming government in 2004 concerns the pension system,” the IMF said. It added that while “demographic shock” would occur later in Spain than elsewhere in Europe, it would be more pronounced.

“In this context, a gradual approach to reform is feasible only if it starts early, progresses continuously, and is sufficiently ambitious,” the body said in a report.

“However, after initial measures in 1997, the reform process has suffered repeated delays.

“While increased allocations to the Fondo de Reserva are welcome, the achievement of long-term fiscal sustainability requires substantive pension reform.

“This should be centered on gradually raising the effective retirement age, via stronger incentives to forego early retirement, and a strengthening of the link between contributions and benefits.”

“The Spanish economy has weathered the difficulties posed by the world economic slowdown of the last three years remarkably well,” the report added.

Last month Jesus Merino Delgado, the chairman of a key pension reform committee, said in an interview that economic growth was the key to maintaining the system in the future.

“Economic growth creates more jobs and that gives a lot of support to the system,” Merino said. “The economic growth of the last few years has allowed us to raise the level of the lowest pensions and build up a reserve fund.”