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Pension funds seek nod to invest offshore

Pension funds seek nod to invest offshore
Mthuli Ncube, is the Finance Minister in the Zimbabwe cabinet appointed by president Emmerson Mnangagwa and past chief economist and Vice President of the African Development Bank. He holds a PhD in Mathematical Finance from Cambridge University.

Pension funds seek nod to invest offshore

GOVERNMENT is working on modalities to allow pension funds to invest offshore, Finance and Economic Development Minister Professor Mthuli Ncube has said.

Pension funds have been lobbying for permission to invest local pensioners’ contributions outside of the country, especially following the re-emergence of inflationary pressures in 2018 and 2019.

According to an earlier submission by the industry to authorities, pension funds sought permission to invest some assets offshore at a threshold of up to 25 percent to preserve value.

In a recent engagement with the industry, Prof Ncube said this would soon be possible.

“What I am going to be doing as I fine-tune the rules for investment in the Offshore Financial Centre is to allow pension funds to invest offshore.

“We are fine-tuning to see to what levels pensions can invest offshore and hold assets in hard currency. To me that will be progress in terms of diversification of risk for pension funds,” he said.

Despite the initial inflationary pressures that came with the re-introduction of the Zimbabwe dollar, the macro-economic environment has stabilised in recent months with inflation falling fast.

In what was seen as a second round of hyperinflation, the Zimbabwe dollar, which was re-introduced in June 2019, depreciated from an initial $2,5/US$1 to current official levels of around $85/US$1.

The Public Accountants and Auditors Board Zimbabwe (PAAB) responded to changes in inflation by classifying the Zimbabwean economy as hyper-inflationary.

But measures such as the Reserve Bank of Zimbabwe (RBZ)’s foreign currency auction system, as well as tight fiscal management has stabilised both depreciation of the local unit and inflation.

As at June 2021, Zimbabwe’s annual inflation stood at 106,64 percent. The RBZ has forecast the annual rate to fall below 55 percent this month and to decline further to under 25 percent by year-end.

Presently, pension funds are able to invest in United States dollar denominated assets within the country, following the promulgation of Statutory Instrument 280 of 2020.

Such investments include, but are not limited to, equity investments on the Victoria Falls Stock Exchange (VFEX) and some private equity investments.

The Finance Minister has also indicated a broadening of investment offerings by the Government.

“I’m aware of that, and suspect that (the pensions industry)’s appetite for fixed income assets will improve as inflation comes down to the 10s, then we can offer a yield that is positive in real terms, and that should improve the situation. We are also looking at issuing a fixed income in hard currency,” he said.

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