Press Release No. <a name="P16_75"></a>03/132

The following joint statement was issued today in Lusaka, Zambia, after the conclusion of a visit by a staff mission from the International Monetary Fund (IMF):

"The Government of Zambia held discussions with a staff team from the International Monetary Fund in Lusaka during the period July 22 to July 30. These discussions covered macroeconomic policy issues and focused on the Government's plans to address a large projected overrun in the government wage bill and related allowances in 2003.

"The Government has explained to the IMF staff team that the wage bill, including housing allowances, is projected to be about K500 billion or 2.5 percent of GDP above the 2003 budgeted amount of K1,520 billion. The IMF staff team fully shares the Government's assessment that payment of this large wage bill and related allowances would result in significant pressure on domestic prices, interest rates and the exchange rate. This would jeopardize Zambia's recent economic revival, which has lifted real growth to an average of 4 percent per year in the last three years after decades of decline. Such a high wage bill would also not leave sufficient room for budgeted priority spending to support the Government's poverty reduction strategy. Moreover, reliance on domestic borrowing to finance the increased level of compensation would add to the budgetary cost of servicing domestic debt, leaving still less room for priority spending.

"Against this background, the Government has reopened negotiations with public service unions in an effort to contain growth in civil service compensation in 2003 and set the basis for returning the wage bill to a more manageable level in 2004. At the same time, the Government is continuing its efforts to limit the size of the civil service, cleanup the payroll to remove "ghost workers" and ensure that allowances are paid only to eligible employees. The Government is enforcing tight control over its operating expenses to reduce costs.

"The IMF staff team and the Government have reached preliminary understandings on a revised macroeconomic framework that covers the period through the end of 2003. This framework would partially accommodate the higher wage bill, while containing inflationary pressures and protecting priority expenditures. These understandings will be revisited in the light of the outcome of negotiations with civil service unions. When these wage negotiations have been concluded, the Government intends to request IMF staff to monitor implementation of the revised economic program for the remainder of this year and will seek continued donor support for Zambia's poverty reduction efforts.

"Satisfactory progress in implementing this program would provide a basis to initiate discussions on a new arrangement with the IMF under the PRGF in support of the objectives of the Government's poverty reduction strategy. Satisfactory performance under a PRGF arrangement will also be required for Zambia to reach the completion point under the HIPC Initiative during 2004."