Zimbabwe has a significant portion of its sovereign debt reduced after a $225 million debt owed by ZiscoSteel to the German Development Bank (KfW) was assumed by a new investor into a section of the giant steelmaker.
The country’s sovereign debt has ripple effects such as reduction in Government expenditure which can cause stagnation of the economy, as in Zimbabwe case.
Occasionally, Government has been making some contributions to creditors although they fell short of expectations. And this has resulted in national pressing requirements such as infrastructure being sacrificed.
The debt overhang has over the years constrained both Government and industry to attract both foreign direct investment and borrow money from multilateral institutions due to the country’s high credit risk profile.
In terms of the country’s external debt to gross domestic product (GDP), TradingEconomics says Zimbabwe recorded a Government debt equivalent to 77,60 percent of the country’s GDP in 2017.
Government debt to GDP in Zimbabwe averaged 72,78 percent from 1990 until 2017, reaching an all-time high of 147,70 percent in 2008 and a record low of 31,40 percent in 2001.
ZimCoke (Pvt) Ltd, through its ZimCoke’s financial advisors and fundraisers Atria Africa helped negotiate the debt clearance process.
According to ZimCoke chief executive Bill Moore, its financial advisors, Atria “have worked with Stanbic Bank Zimbabwe, Standard Bank South Africa, Ernst and Young, the Zimbabwe Investment Authority, the Insurance and Pensions Commission, and the Reserve Bank of Zimbabwe.
“A key aspect of the project has been ZimCoke taking over the KfW debt from ZiscoSteel. KfW is the German Government development bank and this debt had ballooned to $225 million.
“The assistance of the German Embassy, particularly the Ambassador and his deputy, has been invaluable in this regard — as has the help from the Ministry of Finance and Economic Planning.
“This has had the added effect of relieving the Zimbabwe Government of a significant portion of its biggest bilateral debt.
“The country’s debt arrears amount to about $5,6 billion, which, if cleared, can unlock foreign funding from other countries.”
Germany is a member of the Paris Club, an informal grouping of creditor nations owed about $2,7 billion by Zimbabwe.
And in 2015 Germany made a pledge to continue supporting the constitutional alignment and economic reform processes if they prove to be sustainable and was willing to work with Zimbabwe on reducing its debt.
Visiting German regional director for sub-Saharan Africa and Sahel of the German Federal Foreign Office Georg Schmidt at the time, said assistance would only be provided if there were ‘positive signals’ in the process of constitutional alignment.