“We discussed it in the mission, but as I said before the Government has to see where its priorities are: wages, capital spending, tax cuts. You have to balance this. If you do one there is less room for the others, so the Government has to decide its top priority,” said Franks referring to issues regarding social security contribution reductions.
The IMF mission chief said there may be some room for wage raises in the public sector in 2011, and added a decision in this respect will be taken by the Government based on the fiscal space available.
“In 2012 any wage increase will have to be conditioned on the satisfactory achievement of the budgetary targets,” said Franks.
According to the IMF official, Romania needs to meet the budget deficit targets it has agreed with the IMF and the European Union.
Prime Minister Emil Boc said Monday the ruling coalition held no talks on raising wages in the public sector starting October 2011. He said public sector wages might be increased staring January 1, 2012. Boc highlighted that wage hikes depend on the country’s economic growth, and added the issue will be discussed when the state budget for 2012 is drafted.
Franks said he expects the country’s economic growth next year will provide additional budget revenues.
“More people working, more money, GDP is rising so tax collection will rise and that will provide additional revenues, but it’s not going to provide a lot of additional revenues, so spending will have to be tight,” added Franks.
Romania must lower the budget deficit to 3% of the GDP in 2012 from 4.4% in 2011.
The Government committed in the agreement signed in May to downsize the public sector to 1.29 million employees.
According to the country’s fiscal strategy for 2012-2014, the wage fund for 2012 must not exceed 42.5 billion lei (about EUR10.07 billion), or 7.1% of the estimated GDP. Wage spending must not exceed 6.7% of the GDP in 2013 and 6.4% of the GDP in 2014. (EUR1=RON4.2246)