Fiscal risks have increased due to uncertainty about the duration of the pandemic and its consequences, but also those concerning problematic state-owned enterprises.
State officials have announced an increase in salaries for public sector employees for next year, and only the percentage increase is unknown. This will no doubt be known only when the budget for 2021 in December is specified. Although there is no doubt that the International Monetary Fund (IMF) agreed during the last revision of the current arrangement, they still express a lot of reservations about that.
The reason for the “restriction” is the increased fiscal risks due to uncertainty about the duration of the pandemic and its consequences, as well as those that come from troubled state-owned enterprises. On the other hand, there is a need to increase public investment, because it will support the recovery and encourage potential growth.
– The wage bill in the public sector as a share of GDP should be reduced to a more sustainable level, after increasing in the last three years. As a reminder, fiscal consolidation was done a few years ago in order to reduce the share of salaries in the public sector to nine percent of gross domestic product (GDP), and from this argument of theirs, it is clear that this limit has been called into question. Especially this year when the gross domestic product will be lower. The IMF also called us out for the fact that the reform of public companies has not been implemented – management in them, employment and pay grades.
How do economists read the diplomatically worded announcement of the IMF that the increase in salaries in the next year should be limited?
Milojko Arsic, a professor at the Faculty of Economics in Belgrade, says that he understands their formulation on limiting the growth of salaries as a recommendation that they should be increased, but as little as possible. Especially because they have grown more than GDP growth in the past three years.
– There are many reasons why the growth of salaries in the public sector should be limited. First of all, slower growth leads to a reduction in the fiscal deficit. In addition, space should be left for public investment and health care costs due to the pandemic. The argument is that there should be equal conditions on the labor market. The private sector will not increase salaries either this year or next, so wages in the public sector should not grow during the crisis either. Employees of the state should also share the fate of others,” believes Arsic.
He adds that the increase in the mentioned salaries should be for the growth of inflation, ie two or three percent. The better policy is not to increase them at the beginning of the year, but later if the conditions are created for the budget revision to provide those funds.
Most countries, he says, will not increase wages not because they don’t care about those people, but because they care about fiscal sustainability and fairness. In the public sector, salaries are higher due to higher education of employees, but in relation to the private sector, they can be higher by ten to 15 percent, but not more than that, because otherwise parities are violated.
As for the “roll call” that Serbia did not implement the reforms of public companies, as well as their salaries and employment, Arsic states that they stated that in every report in the previous ten years, but that we have resistance to solving it. Once we have achieved fiscal and macroeconomic stability, it remains to address the efficiency of the state.
Ivan Nikolic from the Economic Institute in Belgrade does not dispute that salaries in the public sector have been increased, and this year additionally, but that the current share of those salaries in GDP should be precisely calculated.
– Each of these objections of the IMF, starting with salaries, employment and pay grades in the public sector, is for discussion. There is much more evidence that in some parts of public services there are fewer workers than the number needed for maximum work obligations – says Nikolic, Politika reports.
