Romania’s coalition government has announced plans to raise the country’s gross minimum wage by 9.5%, bringing it to 4,050 lei ($884.61) per month starting in January, Prime Minister Marcel Ciolacu confirmed on Wednesday. The decision follows consultations with both employers and unions as the country approaches presidential and parliamentary elections in late 2024.
This wage hike is part of a broader series of economic measures the government has implemented, which also include two previous increases in state pensions. These steps have contributed to an expanding budget deficit, which is raising concerns among analysts and financial institutions.
Romania’s growing fiscal shortfall, coupled with robust wage growth, has exacerbated inflationary pressures. According to S&P Global Ratings, Romania’s inflation rate is currently the highest in Central and Eastern Europe and is expected to remain above the target range of 1.5% to 3.5% through 2027.
In addition to the wage increase, the government plans to extend a tax exemption on up to 300 lei of the new minimum wage, providing some relief for low-income workers. However, fiscal challenges remain, and the government is yet to reveal a comprehensive budget plan for 2025.
Prime Minister Ciolacu indicated that Romania has a seven-year deficit reduction plan in place, agreed upon with the European Commission. However, the country has not yet submitted the plan, which is crucial for continuing to receive billions in EU recovery and development funds, estimated at roughly €74 billion by 2027. These funds are key to driving infrastructure development and economic growth in Romania.
Despite earlier commitments to reduce its budget deficit below the EU's ceiling of 3% of GDP by 2024, Romania’s independent fiscal watchdog now expects the deficit to increase to around 8% of GDP. This has raised the likelihood of tax hikes in the coming years as the government works to stabilize its public finances.
