IMF says Romania gov’t must contain state wage hikes

Romania’s government must control state employees’ wage gains to avoid spillovers to the private sector which would add to pressures on the overheated economy, the International Monetary Fund said on Wednesday.

Both the central bank and international observers have signaled wage rises are a key worry for the European Union’s newest member, as they fan inflationary pressures and erode competitiveness. “Looking back to the last five six years, wages in the public sector have been driving to a significant extent wages in the private sector,” said IMF senior regional representative for Romania and Bulgaria Juan Jose Fernandez-Ansola. “From the point of view of the government what to do is to make sure that public sector wages are controlled and don’t lead to pressures in the private sector in the context of an economy that is overheating.”

Bucharest’s centrist minority cabinet has pledged to cap wage rises in the public sector to around 10% in a bid to curb inflationary expectations ahead of local and parliamentary elections later this year. But observers say the centrists will face an uphill battle to contain pay pressures this year. Already this year the government averted a strike of railroad workers by granting them a 13% rise.

Analysts and the IMF also say the public wage policy lacks transparency as it does not immediately disclose bonuses and incentives that are added to base salaries. “One of the problems we see in the public sector is that the wage policy is not completely transparent because you have a certain base wage and then bonuses,” he said. “We have to expect the actual outcome (only) at the end of the year.” However, Ferndandez-Ansola said the government appeared to improve its economic rethoric. “At least in terms of the speech of the government and what they’ve been trying to do, they’ve shown awareness of the problem and they are going in the right direction.”

Wages in Romania have risen steadily in recent years as the economy has grown robustly and labor force shortages have boosted pay demands, but pay remains low compared to European Union standards. Net wages in the economy averaged 1,134 lei ($505.6) in February, up 20.5% on the year. (Reuters)