Article

IMF Has Drastically Reduced Use of Wage Bill Ceilings

Author(s):
International Monetary Fund. External Relations Dept.
Published Date:
August 2008
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In July 2007, the IMF clarified its policies on ceilings on public sector wage bills in programs supported by the IMF’s Poverty Reduction and Growth Facility (PRGF). The policy underscores that wage bill ceilings will be used only in exceptional circumstances. Critics had claimed that these ceilings had prevented low-income countries from using donor resources to expand employment in key poverty-reducing sectors such as health and education.

Today, not a single IMF-supported PRGF program includes a wage bill ceiling as a “performance criterion.” That means that disbursement of an IMF credit does not require the authorities to limit the public sector wage bill. And only three PRGF programs (in Benin, Burundi, and Moldova) out of 23 include wage bill ceilings as an “indicative target.” In other words, in these limited cases, IMF financing would not be interrupted even if the ceiling is not met.

In the rare cases where ceilings might remain necessary, Fund staff are asked to provide transparent justification for their use. At the same time, the IMF should incorporate sufficient flexibility in program designs to make room for scaled-up aid, particularly in the priority health and education areas.

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