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Business Editor

LISTED financial services group, ZB Financial Holdings, has raised fears over balance sheet contraction on the back of rising inflationary pressures.

Although the group’s total income increased by 144 percent from $38,6 million achieved during the half-year period ended 30 June 2018 to $94,2 million for the six months period up to 30 June 2019, board chairperson, Professor Charity Manyeruke, said the overall performance “reflects a partial offset of inflation-induced loss of value in the business”. 

Inflation, which became prominent in the last quarter of 2018, has continued on an upward trend during the first half of 2019, closing the period on a year-on-year high of 175,66 percent.

“The group faces a real risk of balance sheet contraction in a highly inflationary environment. Capital preservation will therefore remain a key point in shaping the strategic direction in the hope that macro-economic stability is achieved in the near term,” said Prof Manyeruke in a statement accompanying the group’s financial report for the half year period. 

ZB chief executive officer, Mr Ron Mutandagayi, in a separate statement, also stated that the group’s financial performance in the near term would be “highly susceptible to volatility in macro-economic factors”, particularly general price trends, availability and pricing of foreign currency, and market liquidity conditions. In view of such consideration, the board shelved interim dividend declaration.

As Government continues to roll out a comprehensive economic reform agenda targeting both the fiscal and monetary fronts, hopes are high that these interventions will achieve the desired stability within the short to medium term. However, ZB has noted that during the first half period, structural disequilibrium persisted in the monetary sector with the shortage and sub-optimal distribution of both foreign currency and local notes, which resulted in general slowdown of productivity in the wider business sector. 

Nevertheless, the bank acknowledged that Government’s intervention through the introduction of an interbank floating exchange rate system has resulted in partial offsetting of the parallel market but pointed that the sustainability of the model will be highly dependent on the currency availability. Similarly, it noted that in view of the raging inflation, the Zimbabwe Stock Exchange (ZSE) capitalisation grew by 39,09 percent from ZW$19,42 billion as at 31 December 2018 to ZW$27,02 billion at 30 June, 2019 as investors hedged their investments.

In his mid-term 2019 fiscal policy review statement, Finance and Economic Development Minister, Professor Mthuli Ncube, indicated that liberalisation of the exchange rate, combined with ongoing fiscal consolidation reforms rolled out since October 2018 and a complementary tight monetary policy, have managed to contain excessive money supply growth, which had been the main driver of inflation. 

“Government measures to contain fiscal deficits by capping borrowing from the Central Bank, non-issuance of TBs, as well as stringent expenditure control measures, have significantly restrained money supply growth.

“As a result, the exchange rate fluctuation has largely dissipated with movement towards convergence between parallel market and interbank rates,” said Prof Ncube.

Going forward, the Minister said it was imperative that the country pursues and further strengthens its fiscal and monetary policies while remaining responsible enough to ensure that factors such as wage increases and money supply remain under check.

Government has also stressed the need for inflation rebasing with Prof Ncube noting that the recent change in currency regime from multicurrency to Zimbabwe dollar had definitely impacted on the base for calculation of the consumer price index and hence inflation. Given this transition, he said, Treasury has resolved that Zimstat defers publication of year-on-year inflation while building up data of prices in mono-currency for a period of 12 months to February 2020. 

“This will ensure that we compare like with like in terms of currency regimes. This is in line with what was done in 2009 after the change of currency regime, whereby Zimstat resorted to only gazetting month on month inflation. Year on year inflation publication will therefore resume after February 2020, alongside with month on month inflation publication,” he said.

“In the interim, stakeholders are encouraged to focus more on month-on-month inflation as a barometer for price developments.”