Debt statistics 2017
|Overall international debt burden (% of GDP)||50|
|Government payments on foreign debt (% of revenue)||6.4|
|Government foreign debt (% of GDP)||44|
|Private foreign debt (% of GDP)||11|
|IMF and World Bank debt cancellation ($ billions)||0|
|Country case studies||Yes|
Country case study
Zimbabwe inherited a sizeable debt from Rhodesia, which grew through the 1980s due to drought, questionable development loans, and ‘aid’ loans from western governments tied to buying exports, including military aircraft. By 1990, to keep paying the debt, Zimbabwe had to take out bailout loans from the IMF and World Bank. In return, the economy was liberalised, and public spending cut. Growth slowed, a trade deficit was created and poverty and unemployment increased. Opposition to the government increased, leading to increasingly violent crackdowns. Zimbabwe defaulted on its debt in 2000. Today, campaigners are calling for an audit to identify where all the debt comes from, who loans did and did not benefit, whether or not debts are legitimate, and learn lessons to prevent debt playing a destructive role in the future.
At Zimbabwe’s birth in 1980, the country inherited a $700 million debt from the Rhodesian government of Ian Smith. The loans had been used to buy weapons in the 1970s, breaking UN sanctions. The new government came under international pressure to take on the debt, whilst being promised over $2 billion by western governments for reconstruction and development.
Most of the aid money never materialised. Instead new loans were taken out to pay the Rhodesian debts, fund post-war reconstruction and cope with a large drought in the early 1980s.
The UK gave ‘aid’ loans tied to Zimbabwe buying products from British companies such as General Electric and Westinghouse. Spain lent money for military aircraft. The World Bank lent money for tree plantations, so that local people could use cheaper wood rather than expensive coal. Except when giving the loans the World Bank knew locals did not use coal. And having planted the trees, discovered that locals already had plenty of wood. The UK backed further loans for the Zimbabwean government to buy British made Hawk aircraft, which were later used in the war in Congo in 1998.
By the end of the 1980s Zimbabwe was spending a quarter of government revenue on debt repayments. Some of the inequality of the Rhodesian and colonial eras had begun to be addressed. Infant mortality and malnutrition had fallen. The average number of years children spent in school almost doubled through the decade.
But the World Bank was not happy about the amount of state involvement in the economy. They made clear that more lending was dependent on liberalisation. The government were attentive listeners, and from 1990 spending was cut, trade rapidly liberalised, financial markets and prices deregulated, and labour laws removed. The promise was higher growth, bigger trade surpluses and falling unemployment.
The World Bank named Zimbabwe one of its top ‘reformers’. But the promises and praise rang hollow. Between 1991 and 1997 economic growth fell. Unemployment almost doubled. From having a trade surplus in the 1980s, a trade deficit was created. By 2004 the World Bank acknowledged that liberalisation “largely failed. Social progress slowed, per capita incomes declined and poverty increased.”
Opposition to Mugabe’s regime increased through the 1990s due to the economic turmoil. To get war veterans back on side during the unrest, the government gave them unfunded payments. In rural areas war veterans and hungry peasants began occupying farms. Over time the occupations were backed and expanded by the government.
In 1998 the UK government backed £15 million of loans for the Zimbabwean police to buy British made Land Rovers. At the time, political repression was increasing in the country, and the vehicles came to be used in attacks on political activists. Yet the branch of the UK government which backed the loans, now known as UK Export Finance, did not carry out any social impact assessment of the deal.
Whilst the regime’s actions started to turn them from model pupil to expelled student, more loans were still given. It was only when Zimbabwe defaulted on repayments in 2000 that the cheque book was closed, including on the British Land Rovers.
Since 1980 Zimbabwe has been lent $8 billion but repaid $11 billion. Despite this it is still said today to have a debt in excess of $7 billion, from loans for structural adjustment to Land Rovers and planting trees.
Negotiations have now started between Zimbabwe’s coalition government, particularly MDC Finance Minister Tendai Biti, and western powers on what to do with the debt. Having been in default for the last decade, the western-led debt relief process would actually cost the country money as it would be required to start making repayments. The interest of the government – and lenders – in debt relief is to be able to borrow and lend again, threatening to repeat the disastrous debt cycle.
In 2000, the Zimbabwe Coalition on Debt and Development was formed to campaign for debt justice for Zimbabweans. ZIMCODD are calling for there to be an audit into the debt. They want an official public audit to identify where all the debt comes from, who loans did and did not benefit, whether or not debts are legitimate, and learn lessons to prevent debt playing a destructive role in the future.