IMF warns Bulgaria on wage hikes

SOFIA (Reuters) – The International Monetary Fund urged Bulgaria yesterday to avoid jeopardizing an already overheating economy by maintaining a tight fiscal policy next year and not bowing to pressure to raise wages. The IMF, which no longer has a lending agreement with the European Union newcomer, warned that big rises in public sector wages would inflame inflation further and put at risk the country’s currency board regime which guarantees stability. «The problem is that very high wage increases will have a knock-on effect. The inflation is already very high and the economy is overheating,» IMF mission chief Albert Jaeger told a news conference at the end of a mission visit to Sofia. «There is a risk for the currency board regime if there is a significant deviation from the current policies,» he said. The IMF called on the Socialist-led government to keep its tight fiscal stance and aim for a budget surplus of 3 percent of GDP next year, up from 2.5 percent expected in 2007. The Bulgarian government, which has one of the most prudent fiscal policies in Europe, has said it would aim for a surplus of 2.5 percent in 2008, similar to this year. The cabinet is under increasing pressure to raise living standards as the state of fewer than 8 million people remains the poorest EU nation with average monthly salaries of about 400 levs ($291). Teachers began an indefinite strike on September 24 to press for a doubling of their salaries, which has already paralyzed the country’s schools. Social workers, doctors, pensioners and miners also demanded higher pay this year. The government has said fulfilling demands for a 100 percent rise could accelerate inflation and jeopardize the economy. The IMF’s Jaeger said wages should grow only in line with productivity, which remains low.