World Bank halts Zimbabwe loans

The suspension of World Bank loans spells more trouble for the economy

The World Bank has said it will not lend any more money to Zimbabwe until the country improves its repayments record on outstanding loans and credits totalling $889m.

The global development agency said it was placing its loans and credits to Zimbabwe on a "non-accrual" status because repayments of $47m were overdue by more than six months.

Analysts said Zimbabwe would be forced to seek fresh funds from other sources if the country is to turn around its worst economic crisis since independence in 1980.

But these would be more difficult to obtain and probably more expensive in light of the World Bank decision, they said.

Low ebb

The country's relations with its donors are already at a low ebb, with several organisations having criticised President Robert Mugabe's government for mismanaging the economy.

Worsening political instability and occupations of white-owned farms this year have also put off international banks and foreign investors from involvement in the country.

Last year, the International Monetary Fund suspended a $193m loans programme.

The programme's restoration in August was threatened almost immediately as it appeared that Zimbabwe was deliberately underestimating the cost of its military involvement in Congo.

In July, Zimbabwe had told the IMF it was spending $3m a month on the war. But an internal Zimbabwe government memo brought to the IMF's attention referred to expenditure of $166m between January and June.

Wage freeze

The latest setback for Zimbabwe came as newspapers reported that the government was freezing wages for public sector workers as part of efforts restrain galloping inflation and restore macroeconomic stability.

This followed an increase in public sector wages - announced before parliamentary elections in June - which had prompted an upwards revision of the budget deficit to 15% of gross domestic product.

Last month, the budget deficit was revised again, to 22% of GDP, as debt servicing obligations and military spending mounted.

This compared with a 3.8% deficit-to-GDP ratio estimated when the budget was presented in October 1999.

The World Bank's representative in Zimbabwe, Rogier van den Brink, last Thursday said the country's failure to repay its debts was creating "a fragile situation which could degenerate even further, with severe economic, social and political consequences" for southern Africa.

Zimbabwe needed to act decisively to improve its finances and to restore law and order, he said.

"The politics of inaction means that everyone loses."