Newsroom: Article

Emerging Market De(bt)velopments

At the time of going to press, the outcome of the elections in Zimbabwe was still under dispute. But based on the information we have so far, one may conclude that the virtually unchallenged position of Mugabe’s ruling party Zanu PF party has come under serious pressure. There is a real probability of a swift end to Mugabe’s 28 year reign of Zimbabwe.

Be it now or in several years, he will be leaving a shattered economy and fiscal balance: inflation is currently reported at over 160.000% and 85% of the population is officially jobless (worsened by one of the highest AIDS infection figures worldwide). Foreign debt is reported between USD 4 billion and USD 5.5 billion with approximately 90% held by Paris Club creditors.

Although Zimbabwe’s current situation may be the worst worldwide, it has not become as economically isolated as, for example, North Korea. The current global investment interest in Africa and commodities has also benefitted Zimbabwe. China has recently invested about USD 1.9 billion in Zimbabwe and foreign investments are expected to rise further. Banks, such as the investment bank Renaissance from Russia and Citibank, already taking the lead with local investments through local partners. The current high commodity prices should further help commodity-rich Zimbabwe as well.

The expectation is that after a political turnaround, international economic support and debt relief will follow shortly. The Paris Club has put Zimbabwe on its shortlist of countries for which a treatment should not be excluded in the near term. South Africa and other bilateral creditors are also expected to step in and provide support.

For private creditors, a multilateral / bilateral sponsored buy-back program is the most likely exit after a Paris Club deal has materialised, which will likely take at least three years from Mugabe’s departure. Based on Zimbabwe’s economic and debt statistics, and benchmarked against the latest buy-back programs, any expectation beyond 5% of principal seems unfounded.

We advise holders of Zimbabwe debts to contact us for advice on any questions relating to (potential) defaults or the possibility of trading out of risk positions.

A. Thiescheffer on thiescheffer@omnibridgeway.com
R. van Hulst on vanhulst@omnibridgeway.com
H. Rijkens on rijkens@omnibridgeway.com

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