Zimdollar return hits pensions

    Zimbabwe Association of Pension Funds (ZAPF) is saying the introduction of Statutory Instrument (SI) 142 has reduced confidence in policyholders and shareholders in the pensions industry that has been on recovery path during the multi-currency regime.

    The multi-currency regime was introduced in 2009 after a decade-long hyperinflation which eroded prescribed assets and cash at banks for pension fund members.

    However, it was scrapped last month by authorities.

    In an e-mailed response by ZAPF director-general Sandra Musevenzo, policyholders and shareholders were starting to have faith in the industry, thanks to the multi-currency regime before it was scrapped.
    “The industry had hoped to recover during the multi-currency regime, but the sudden introduction of SI 142 in the economy has dampened the already low confidence levels of policyholders and shareholders in the industry. Introducing the Zimdollar has suddenly refreshed the memories of the hyperinflationary period before 2009, leaving a big dent on the little confidence that members had in the industry,” Musevenzo said.

    During the hyperinflation period, the pension industry saw assets which were denominated in Zimdollar lose value.

    “The dollarisation of Zimbabwe in 2009 saw pension funds losing value as monetary assets denominated in Zimdollar, such as money markets, prescribed assets

    and cash-at-bank had their values eroded by decade-long hyperinflation and low activity in the Zimbabwean economy,” Musevenzo said.

    She said the poor performance of the economy also meant that even inflation-hedging assets, such as equities and real estate, lost value to some extent. As a result, people lost confidence in the life and pensions industry.

    Musevenzo said the prospects of positive real return were remote due to the high inflationary outlook. As a result, pension funds and life insurance companies

    were likely to shun interest bearing securities and go for inflation hedging assets.

    “A combination of tightening Zimdollar liquidity due to the requirement to deposit funds to cover legacy debts at 1:1 and RBZ (Reserve Bank of Zimbabwe)

    regulation that places a 90-day vesting period on fungible shares could drive a short-term equities sell off, more so given a likely run on ZImdollar balances.

    In the short term, equities are likely to fall, but the general trend in the medium-to-long-term is expected to be upward due to inflationary pressures as

    investors look for inflation-hedging assets,” she said.

    ZAPF is set to hold a breakfast meeting today aimed at unpacking SI 142 of 2019 and its implications to the pension industry in order to educate the public.

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