IMF: Minimum wage increase in 2007 hinders disinflation

The increase in the minimum wage from 330 to 390 RON in 2007 is not in agreement with the inflationary target for next year, International Monetary Fund (IMF) experts say. “The fund urges the Romanian authorities to approve moderate raises of the minimum wage as well as wages in state-run companies,” the IMF representatives said as part of the conclusions drawn from their visit in Romania. Considering the increase in the number of employees in the state-run sector, the recruitment policy needs to be revised carefully, IMF analysts say. “The fund recommends that the authorities devise a wage policy in agreement with the low inflation requirements and maintain the commitments for only one moderate increase in 2007, provided for in the budget,” the Fund representatives specified. As for 2005 and 2006, the IMF notes that despite the moderate minimum wage growth, pressure on domestic demand increased, coupled with an increase in the number of employees in the public sector. “The significant growth in the number of employees in the public sector has worsened pressures on the total wage fund of budget-paid employees, which is estimated to go up by 32% to 6% of GDP this year, from 5.4% in 2005 and the level of 4.8% recorded in 2004,” the document shows.