Where does Zimbabwe’s debt come from?

Where does Zimbabwe’s debt come from?

Introduction • Inherited from Rhodesia • Early 1980s drought • ‘Development loans’ in 1980s and 1990s • Early 1990s drought and structural adjustment

1. Inherited from Rhodesia

2. Early 1980s drought

3. 1980s and 1990s ‘development’ loans • Loans by World Bank supposedly for productive projects • Loans from foreign, especially western governments, to buy their companies exports

World Bank projects Tree planting – started 1983 We estimate US$2 million still owed

World Bank projects Hwange power station – started 1982 • Loans from World Bank, European Investment Bank, UK, Germany, private banks: US$300 million • Produced less electricity than expected, partly due to tied aid • Devaluation meant cost 65 per cent more than it should have done • To repay loans required return of 25 per cent, but World Bank estimated return 13 per cent We estimate US$30 million still owed to World Bank alone

Loans from foreign governments • The UK lent US$140 million of ‘aid’ which had to be spent on UK exports. US$40 million is still owed on these loans. • Spain lent US$12 million for military aircraft and vehicles. Claim US$10 million is still owed. • The UK lent unknown amount in 1990s for police to buy 1,500 Land Rovers. US$30 million is still owed.

Debt by the end of the 1980s

Debt by the end of the 1980s • 25 per cent of export earnings spent paying foreign debts • 25 per cent of government revenue spent paying foreign debts • But the World Bank said Zimbabwe had avoided a “damaging build-up of external debt”

4. 1990s: Drought and structural adjustment

4. 1990s: Structural adjustment bailout loans • World Bank lent: US$300 million • African Development Bank lent: US$200 million • IMF lent US$440 million These loans were not invested in particular projects, but just used to meet repayments on old debts.

4. 1990s: Structural adjustment loans Economic and Structural Adjustment Programme (ESAP): • Cut government spending • Trade liberalisation • Deregulation of prices • Devaluation of exchange rate • Removal of labour laws

4. 1990s: Structural adjustment loans IMF, World Bank and AfDB said growth and employment would increase • Growth fell from averaging 4.5% a year to 2.9% a year • Unemployment increased from 30% to 50% • Percentage of population living below the poverty line increased from 40% to 75% • Went from having a trade surplus to a trade deficit

4. 1990s: Structural adjustment loans • 1995 World Bank said ESAP “highly satisfactory” • 1997 World Bank praised Zimbabwe for implementing ESAP “with determination and persistence” • 2004 World Bank said “In the 1990s, efforts to accelerate growth through better fiscal management and market liberalization largely failed. Social progress slowed, per capita incomes declined, and poverty increased.”

4. Debt by the end of the 1990s • 25-30 per cent of export earnings spent paying foreign debts, but new loans drying-up • Government had to default, but no mechanism existed to deal with. Zimbabwe judged too rich to be in Heavily Indebted Poor Countries initiative.

Zimbabwe loans and debt repayments 1980-2009: Lent US$7.7 billion Repaid US$11.4 billion

Zimbabwe debt today Zimbabwe government foreign debt (Reserve bank of Zimbabwe end-2009 figures): • Foreign governments: 40 per cent • Multilateral institutions: 35 per cent • Private: 5 per cent • Unspecified: 20 per cent

Zimbabwe’s options 1) Nothing, continue default to western world 2) Heavily Indebted Poor Countries process • We estimate would reduce debt by about half • Debt repayments would increase; we estimate to 13 per cent of government revenue • Would make Zimbabwe eligible to loans from western world again 3) Use mineral resources to repay 4) Debt audit

What we are asking creditors to do • Release all information and documents on where the debt comes from • Signal they would support and co-operate with a debt audit if one were held • Lend more responsibly in the future

Where does Zimbabwe’s debt come from?