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The IMF gives the formula for increasing salaries in Albania: Work should not be measured by hours of stay, but by productivity

2024-02-16 14:26:59Biznes SHKRUAR NGA REDAKSIA VOX

The IMF gives the formula for increasing salaries in Albania: Work should not be

While for the Albanian government, curbing the emigration of the workforce remains a challenge, which is intended to be addressed through salary increases, the International Monetary Fund raises some concerns about the non-political effects. Referring to a recently published analysis, the IMF points out that wage growth can lead to an increase in inflation, especially when labor markets are tight and the economy is operating at or above potential.

However, IMF research highlights that there are several factors that ease the impact on inflation in Albania, including the relatively small size of the public sector and the low level of inflation that Albania currently has. However, according to the IMF, the effects are ongoing with the main impact on expected inflation for the period 2024–2025, increasing inflation by about half a percentage point in both years.

The IMF points out that if not offset by productivity growth, high wages and inflation mean a potential loss of competitiveness, as in 2022, annual wage growth exceeded annual productivity growth.

For this reason, the IMF analysis states that it is important to ensure that recent public sector wage increases do not jeopardize medium-term fiscal consolidation objectives. "Therefore, they must be accompanied by additional revenue measures and improvements in the efficiency of the public sector.

Other considerations include reforms through the Strategy for the Management of Public Finances, increasing transparency and supervision in the determination of public salaries, integrating it into the budget framework and promoting digitalization related to payments," the document states. IMF analysis notes that such policies tend to promote the efficiency of wage formatting and employment processes.

On the other hand, it is recommended that, instead of measuring public wage increases by length of service, the authorities may consider introducing a well-designed performance-based payment component to improve the quality of public sector service delivery.


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