Wage Ceilings: For exceptional Use Only

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The IMF Executive Board clarified policies about the use of wage bill ceilings in IMF-supported programs. Wage bill ceilings are caps on government spending on civil service wages. The proportion of programs with wage bill ceilings under the IMF's Poverty Reduction and Growth Facility (PRGF) has declined from 40 percent during 2003-05 to about 32 percent as of June 2007.

Only 3 out of 28 PRGF arrangements-those for the Central African Republic, Chad, and Malawi-had limits on the wage bill as a quantitative performance criterion; another 6 programs include them as indicative targets (a weaker form of conditionality).

Wage bill ceilings can help restrain wage spending in cases where such expenditures threaten macroeconomic stability and squeeze out other priority spending (such as on medication and schoolbooks). Although designed as a short-term measure, such ceilings have tended to persist in programs and have not always been efficient in achieving their objectives. Although wage bill ceilings have been implemented flexibly, they have been criticized on the grounds that they have prevented countries from increasing employment in critical sectors such as health and education.

As countries strengthen their budget and payroll systems and formulate fiscal policy using medium-term frameworks, the need for wage bill ceilings as a means for controlling wage and employment costs is diminishing.

However, developing these systems in low-income...