Uncovering Zimbabwe’s debt
Despite the fact the World Bank lent money for trees which were not needed because it had not asked farmers if they were short of wood, the cost of repaying the loan still falls entirely on the shoulders of the Zimbabwean government. In 1992 the Zimbabwean government itself said the Bank’s spurious evaluation of an economic return had led it to agree to a loan when it should have asked for a grant.37 But by then it was too late; the Bank insists repayments have to be made. Another 1980s project was a jointly funded plan with UK CDC to subsidise private building societies to give loans for low cost housing in urban areas, followed by a second similar project in the 1990s. In total around US$110 million was borrowed from the World Bank.
The World Bank evaluation of the project says it successfully replaced public provision of housing with private, whilst giving no consideration as to where the revenues to repay foreign loans would come from.45 The use of loans in foreign rather than domestic currency for locally produced housing seems unnecessary. For instance, it has been estimated that the total proportion of imports within the cost of the low income housing was 7.6 per cent.46 Academic Dumiso Moyo argues the project failed because it didn’t reach the poorest households who could not afford mortgages, whilst also leading to cuts in the provision of public sector housing.47
Box 1. Hwange coal power station The largest World Bank loan in the 1980s was US$105 million disbursed between 1982 and 1991 to develop the Hwange Coal Power Station. A further US$250 million worth of loans was provided by the European Investment Bank, the UK government’s CDC, private loans from British and Italian companies who would supply parts for the plant, a loan from the shadowy ‘Eurodollar’ private markets and Zimbabwean government general borrowing, including loans from private foreign banks.38 On completion the power plant produced less electricity than expected; 37 per cent below the World Bank prediction in 1987, and 25 per cent below in 1990.39 The World Bank says that reasons for Hwange’s underperformance included cost saving short cuts, the power station being unduly complicated, and the fact loans were tied to the use of British and Italian companies meant that scope for amending designs and competitive bidding were low.40 Companies which worked on the power station included Babcock (UK), General Electric Company (UK), Ansaldo (Italy) and Mother & Platt (UK).41 During the construction of the power plant, the Zimbabwean dollar heavily devalued against the US dollar. This meant in Zimbabwean dollar terms the power plant cost 65 per cent more than estimated.42 Because the loans were given in US dollars, this did not immediately impact on the project going ahead, but it had a huge impact on debt repayments. In terms of the Zimbabwean economy, the cost of the parts of the project paid for by foreign loans increased by 65 per cent. The interest rates charged on the World Bank and UK CDC loans were 11.5 per cent. The World Bank on completion claimed that the economic return of the project was 13 per cent.43 If true, this meant the impact of the power station on the Zimbabwean economy may have been just enough to meet interest payments. What the World Bank failed to take into account was that the devaluation meant that in terms of the Zimbabwean economy, the debt was 65 per cent higher than originally estimated, meaning the return on the project needed to be at least 25 per cent to meet debt repayments. The debt burden created by Hwange power station was far greater than any economic benefit. Furthermore, a major condition of the World Bank loan was to increase electricity prices so that the Zimbabwean public electricity company would be able to use bills to pay 30 per cent of debt repayments. In fact, electricity prices ended up 7 per cent higher than demanded. However, because of the devaluation, and despite electricity price increases, electricity bills were only generating 18 per cent of the revenue needed to repay foreign loans by 1989;44 the remainder had to come from central government. The World Bank’s appraisal of the project regarded this as a political failure to raise bills – even though they had increased more than originally demanded – but paid no regard to the real problem; the excessively high debt created by building the power station.
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