Capital and value preservation remain critical, experts say


The Chronicle

Prosper Ndlovu, Business Writer
Gradually rising inflationary pressures require companies to maintain a focus on value and capital preservation as a safeguard in the outlook, economic experts said.

Although the government has made progress in containing annual inflation, which had slowed to 50.2% in August 2021, from a post-dollarization record of 837.5%, the trend has recently increased, reaching 60.7% in August 2021. December 2021.

The latest official data released by the Zimbabwe Statistics Agency (Zimstat) indicates that the year-on-year inflation rate for March 2022 was 72.7%.

The month-on-month inflation rate was pegged at 6.3% for March 2022 after falling 0.7% from the February 2022 rate of 7.0%.

Inflation, which refers to the rate of increase in prices over a given period, is a typical indicator of the cost of living in a given country.

“The resurgence of inflationary pressures indicates that the preservation of value and capital will remain critical over the forecast period,” Stanbic Bank Zimbabwe Chairman Mr. Gregory Sebborn said in a recent statement accompanying the financial results. of the bank for the year ended December 31, 2021.

Last week, the official exchange rate between the Zimbabwe dollar and the US dollar stood at 1:142 in favor of the greenback, compared to 1:138 last week.

Financial experts associate rising inflationary pressures with “excessive money supply”, which manifests itself in the dislocation between the foreign currency auction rate and parallel rates.

The parallel market exchange rate hovers around USD 1:220 and above, which authorities attribute to the speculative behavior of some influential market participants.

Business leaders noted the continued concern over the weakening of the local currency against the United States dollar, which has been blamed for erosion of income and loss of purchasing power amid the price escalation.

Exchange rate volatility and the existence of an alternative market have tended to drive up business operating costs as price pegs to the US dollar have become rampant, the group’s chief executive said. FBC Holdings Limited, Mr. John Mushayavanhu.

“The growing gap in foreign exchange premiums between official rates and alternative market rates has significant effects on inflation,” he said.

“However, we remain hopeful that current monetary and fiscal policy targets will deflate inflationary trends.”

At the same time, Mr. Sebborn stressed the need to address inefficiencies in the foreign exchange auction system, which has led to external payment arrears.

He said, however, that the Zimbabwean economy is also well positioned to benefit from the growing trade prospects stemming from the positive global economic outlook.

The country’s economy grew by an estimated 6% in 2021, supported by a good rainy season, which led to improved agricultural production.

“The growth momentum is expected to continue through 2022, with forecasts ranging from 3% (IMF) to 5% (government).

Mining and agriculture are expected to be the main drivers of growth in 2022,” he said.

Despite the positive gross domestic product outlook for 2022, he said the bank remains cautious about potential business risks.

These included; erratic rains, which could reduce the productivity of rainfed crops; and the Covid-19 pandemic, which remains a major threat.

Although Stanbic Bank made an annual after-tax inflation-adjusted profit of $5.2 billion, it said its operating expenses rose threefold from $8.6 billion in 2020 at $8.9 billion.

This growth is largely explained by non-recurring costs, which were incurred as the Bank completed its workforce optimization project.

“This has been compounded by the impact of exchange rate fluctuations on our foreign currency-denominated operating expenses, which include but are not limited to license fees, data lines, insurance and franchise fees,” the bank said.

“The bank’s customer deposit base grew on a historical cost basis from $35.5 billion in 2020 to $91.8 billion, largely supported by the increase in our foreign currency deposits combined with the increase in the money supply.”


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