One of the recommendations of last week’s IMF mission in Bulgaria is to “cool down wage growth in the public sector.” This is not the first time that the IME has commented on the accumulation of risks to fiscal stability as a result of ill-considered decisions to increase spending, and in particular wages in the defense and security sectors over the past year. The start of the negotiations about Budget ’26 is an appropriate moment to look for macroeconomic rationale in the debate. Simply put, is it time to freeze public sector wages, given the dynamics of wages and economic trends in the period from the last year before the pandemic to the present?
Here is what the data show about the change in labour costs in the administration and security sectors, as well as in education and healthcare, which are also largely financed by public funds.
- For the period from the second quarter of 2019 to the second quarter of 2025, Bulgaria reports the highest nominal growth in wages for employees in public administration and security in the European Union – 116% or more than double. Over the same period, nominal GDP growth increased by 79.6% – also a fairly high rate, but still more than 36 percentage points lower.
- All countries in the top 10 in terms of wage growth in the administration are from Central and Eastern Europe – income convergence is a fact and Bulgaria is part of the general trend. However, no other country has doubled the salaries of civil servants, and in several countries the growth is lower than GDP growth for the period. An exception to the trend is the Czech Republic, where the increase in public administration salaries is “only” 30%.
- At the other end of the scale are the countries of so-called Old Europe, where the increase in public administration salaries is up to 20% (in six countries) and between 20% and 30% (in another six). At the bottom are Italy and Germany, with growth of just over 12%. There, salaries are growing at a slower rate than economic growth for the period.
- Bulgaria ranks second in terms of average wage growth in education (122%) and fourth in healthcare (100%). It is striking that in many countries, wage growth in these two sectors—largely financed by public funds—outpaces that in administration and security.
- In the business sector as a whole, wages are also growing rapidly across the region, with Bulgaria again leading the way at nearly 98%. It should be noted, however, that in most countries, wages in the private sector are growing more slowly than those in administration. In Bulgaria, however, the growth in the administration is more than 18 percentage points higher – such a large difference “in favour” of civil servants is seen only in Croatia and Poland among the countries in the region.
In other words, the trends of wages growing faster than the economy, those in the public sector growing faster than those in the private sector, and the linking of public sector salaries to automatic mechanisms need to be stopped or at least seriously reconsidered. Otherwise, we will soon have not only a budgetary problem but also an economic one.
Written by Latchezar Bogdanov and Radostin Dyakov, intern at the IME.
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