Zambia entered the enhanced Heavily Indebted Poor Country (HIPC) initiative in November 2000. According to the agreement with the IMF and World Bank, the country was supposed to have reached the "completion point"--the point at which debt relief would actually be delivered--in December 2003. This would have meant Zambia being relieved of about half of its huge external debt of US$6.8 billion.
Despite its good track record for the first two years (according to the Fund and the World Bank), Zambia was removed from the Fund's credit line in April 2003 after it was discovered that the country was not meeting limitations on public sector salaries set by the Fund. Consequently Zambia has been put on a Staff Monitored Programme (SMP) until June 2004, instead of the conventional Poverty Reduction and Growth Facility (PRGF). During this period, should Zambia fail to satisfy the conditions of the IMF/World Bank, the country will not reach the "completion point". This means it would have to pay close to US$300 million in debt servicing from domestic resources in 2004, with that figure rising in subsequent years.
The Zambian government is the country's biggest employer. However, remuneration in the civil service cannot be compared to what people with similar qualifications in the private sector earn, or even what is earned by civil servants in neighbouring countries. Many professionals have been leaving the civil service to go and work elsewhere.
In the hope of retaining its professional staff, the government introduced a housing allowance system. As a result, the ratio of public sector wages to Gross Domestic Product (GDP) reached 9%, exceeding the 8% agreed with the Fund in the budget. [Because of this] Zambia was removed from the PRGF and put on a Staff Monitored Programme.
To meet the 8% agreement, in this year's (2004) budget, there is no salary increment for any civil servant despite rising price levels linked to increased value-added taxes and import duties. Housing allowances have been reduced to unacceptable levels. No new civil servants are to be employed for the next one and half years despite a shortage of doctors and...