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the population. Wage and salary e&rners were obviously the most directly hit. But other groups were also affected. Unemployment was initially worsened by reductions in public spending, by the imposition of the freeze on recruitment to established posts, and by reductions in the 'daily paid' public sector labour force. Workers in the informal sector suffered in at least two ways: first, they faced reductions in the demand for the goods and services which they produce, owing to the declining wage incomes received by the formally employed. Second, the sharp reductions in formal sector incomes forced many - with jobs to engage in 'moonlighting' thereby swelling the numbers participating in informal urban activities, and forcing a reduction in the average incomes earned from these activities. Equally, those wh,o were - dependent on government services particularly education, health and extension - experienced a decline in their real incomes resulting from expenditure cuts. These costs particularly affected those with large families, single parent households, the old, the sick and the infirm.

This downward pressure upon other incomes which the reductions in public spending, increasing levels of unemployment and declining real wages set in train, had wide implications. A sample survey undertaken early in 1986 amongst 100 low-income Lugaka households showed that the majority had significantly changed th, composition of their diets since the auctioning of foreign exchange had began in October 1985. In particular, the quantity of more expensive, high protein foods which had previously been bought had been reduced, and often substituted by mealie meal. Some of the very poorest households in the sample, however, had also reduced their purchases of staples. Within the group, female-headed households were shown to be most at risk, since they were often dependent upon a single, irregular income source (UNDP 1986:22).

More generally, incomes in the informal sector were threatened during the initial period of policy reform, largely because of the sharply declining incomes of the wage-earners, on whom they depended for their market. This, together with rising levels of urban unemployment implied that the incidence of serious hardship within the urban centres increased significantly over the short-term. As regards poorer families in the country as a whole the short-term impact of adjustment was also probably negative. For rural producers the re-structuring of relative prices should have been relatively - advantageous except for that important group of food producers in isolated communities, where the previous policy of panterritorial pricing had provided a cross-subsidy from those closer to the line of rail. Equally vulnerable were poorer households with large families. For them the previous decade had been characterised by falling standards of educational provision, medical care and nutrition. Now, further reductions in government health and education budgets in many parts of the country (including the urban areas) selectively disadvantaged those households which - on account of family size - had the lowest per capita incomes. Equally, of course, they hit the prospects for long-term economic growth by undermining the quality and effectiveness of the nation's future human capital.

Reiection of Reform. During 1986 the exchange rate had fluctuated between **KS** and K14.6 per US dollar, (compared with a rate of K2.2 which had prevailed prior to October 1985). The inflation rate generated by the