ZIMBABWE’S debt-distressed government will repay its US$400 million loan from the African Export and Import Bank (Afreximbank, pictured) using part of the proceeds realised from platinum sales as the mining industry faces a severe slowdown in commodity prices impacting negatively on export earnings.
The southern African country is currently ineligible to access concessional funding from international financial institutions such as the World Bank and the African Development Bank after defaulting on repayments at the turn of the millennium.
According to the Public Debt Report, total public and publicly guaranteed (PPG) debt stood at US$17.7 billion, as at the end of September 2023, of which external debt amounted to US$12.7 billion (72%) and domestic debt of US$5.0 billion (28%).
“Government, in February 2023, secured a US$400 million loan from Afreximbank for budget support and the financing of trade-related infrastructure,” the Public Debt Report reads.
“The US$400 million Afreximbank loan is repaid using 35 percent of Zimplats’ export proceeds, which are managed by RBZ.”
The terms of the Afreximbank include an interest rate of 10.216%, arrangement fees 2.75%, commitment fee 0.5% and default Interest of 12.216%. The loan which has no grace period will be repaid monthly and should be fully serviced by 2029.
The Chamber of Mines of Zimbabwe says royalty for platinum, which went up by 180% from 2.5% to 7%, is impacting negatively on the viability of platinum projects. Platinum producers contend that the increase in platinum royalty resulted in a 5% average increase in overall production cost.
“The situation has been worsened by slowdown in PGMs prices. Rhodium price declined from around US$13 000/ounce in September last year compared to the current average of around US$4 000/ ounce,” a report by the Chamber of Mines reads.
“Palladium prices also declined from US$2 200/ounce in September last year, to the current averages of around US$1 200/ounce. The platinum producers are operating at full capacity and, unlike other mineral sub-sectors, they have little scope to ramp up production to cover for revenue losses due to softening PGMs prices.
“Resultantly, the contribution of the platinum group metal miners to the economy has been declining over the last 12 months. Given the current situation and to restore viability as well as maximise the contribution of the platinum industry to the economy, we appeal for a royalty of around 3%. The royalty can be reviewed in line with movements in platinum prices up to a maximum of 5%.”
Mining experts say the sector’s viability has been worsened by the increase in the cost structure, foreign currency shortfalls, capital constraints and fragile power supply.
Official figures show that mineral revenue for the first half of 2023 were at US$2.6 billion, down from US$2.9 billion for the same period last year.
Now the authorities are now making token payments to creditors in an effort to normalise relations and access concessional funding in future.
Official figures show that the government made external debt service payments amounting to US$55.6 million over the period from January to September 2023, for the active portfolio, legacy debts and token payments.
Treasury made token payments to all international financial institutions and Paris Club creditors amounting to US$10.7 million over the same period.