IMF warns that growth in public sector wages has triggered inflation

The IMF staff visit to Croatia came to a close on Tuesday. In its concluding statement the IMF delegation noted that the Croatian economy continues to grow rapidly and is among the highest in the Euro Area.

However, the delegation warned of the growth in the budget deficit and emphasized that fiscal consolidation is necessary to improve productivity and competitiveness. The International Monetary Fund's Assistant Director for its European Department, Yan Sun: "At this time also, Croatia still has a lot of EU funds in the economy. So use the time to reduce the fiscal deficit and don't delay it. And this is critical to achieving all the objectives we discussed. To safeguard microeconomic and financial stability. To build a buffer and resilience for the future. Because Croatia, for a small open economy, we live in a global environment that is highly uncertain and also we face structural changes in the global economy. At the same time, use the time to deepen Croatia's reforms. To put Croatia in a stronger position to respond to future challenges and shocks."

The IMF delegation also linked surging inflation in Croatia to wage growth in the public sector.

"Now Croatia's inflation is four and a half, around four and a half - four to four and a half, so you're about two percentage points higher than the equilibrium inflation. I think you all know that as a result of the implementation of public wage reform, there was a very large public wage increase last year and also it continued this year. So our analyses show that public wage reform, public wage increase, have contributed, OK, have played a notable role in higher inflation since 2024," Sun said.

Source: HRT